NOTE AND WARRANT PURCHASE
AGREEMENT
Dated as of February 13, 2006
by and among
FINANCIALCONTENT, INC.
and
THE PURCHASERS LISTED ON EXHIBIT A
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S>
<C>
ARTICLE I
Purchase and Sale of Notes and
Warrants.......................................................1
Section 1.1
Purchase and Sale of Notes and
Warrants.............................................1
Section 1.2
Purchase Price and
Closing..........................................................1
Section 1.3
Conversion Shares / Warrant
Shares..................................................2
ARTICLE II
Representations and
Warranties................................................................2
Section 2.1
Representations and Warranties of the
Company.......................................2
Section 2.2
Representations and Warranties of the
Purchasers...................................13
ARTICLE III
Covenants....................................................................................15
Section 3.1
Securities
Compliance..............................................................15
Section 3.2
Registration and
Listing...........................................................15
Section 3.3
Inspection
Rights..................................................................16
Section 3.4
Compliance with
Laws...............................................................16
Section 3.5
Keeping of Records and Books of
Account............................................16
Section 3.6
Reporting
Requirements.............................................................16
Section 3.7
Other
Agreements...................................................................17
Section 3.8
Use of
Proceeds....................................................................17
Section 3.9
Reporting
Status...................................................................17
Section 3.10
Disclosure of
Transaction..........................................................17
Section 3.11
Disclosure of Material
Information.................................................18
Section 3.12
Pledge of
Securities...............................................................18
Section 3.13
Amendments.........................................................................18
Section 3.14
Distributions......................................................................18
Section 3.15
Reservation of
Shares..............................................................18
Section 3.16
Transfer Agent
Instructions........................................................18
Section 3.17
Disposition of
Assets..............................................................19
Section 3.18
Form SB-2
Eligibility..............................................................19
Section 3.19
Subsequent
Financings..............................................................19
ARTICLE IV
Conditions...................................................................................20
Section 4.1
Conditions Precedent to the Obligation of the Company to Close and
to Sell the
Securities.........................................................................20
Section 4.2
Conditions Precedent to the Obligation of the Purchasers to Close
and to Purchase the
Securities.........................................................................21
ARTICLE V
Certificate
Legend...........................................................................23
Section 5.1
Legend.............................................................................24
ARTICLE VI
Indemnification..............................................................................24
Section 6.1
General
Indemnity..................................................................24
Section 6.2
Indemnification
Procedure..........................................................25
ARTICLE VII
Miscellaneous................................................................................26
Section 7.1
Fees and
Expenses..................................................................26
Section 7.2
Specific Performance; Consent to Jurisdiction;
Venue...............................26
Section 7.3
Entire Agreement;
Amendment........................................................26
Section 7.4
Notices............................................................................27
Section 7.5
Waivers............................................................................28
Section 7.6
Headings...........................................................................28
Section 7.7
Successors and
Assigns.............................................................28
Section 7.8
No Third Party
Beneficiaries.......................................................28
Section 7.9
Governing
Law......................................................................28
Section 7.10
Survival...........................................................................28
Section 7.11
Counterparts.......................................................................28
Section 7.12
Publicity..........................................................................28
Section 7.13
Severability.......................................................................29
Section 7.14
Further
Assurances.................................................................29
</TABLE>
<PAGE>
NOTE AND WARRANT PURCHASE AGREEMENT
This NOTE AND WARRANT PURCHASE AGREEMENT dated as of February 13,
2006
(this "Agreement") by and among FinancialContent, Inc., a Delaware corporation
(the "Company"),
and each of the
purchasers of the senior secured convertible
promissory notes of
the Company whose names are set forth on Exhibit A attached
hereto (each a "Purchaser" and collectively, the "Purchasers").
The parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF NOTES AND WARRANTS
Section 1.1
Purchase and Sale of Notes and Warrants.
---------------------------------------
(a) Upon the following terms and conditions, the Company shall
issue and sell to
the Purchasers,
and the Purchasers shall purchase from the Company,
senior
secured convertible
promissory notes in
the aggregate
principal amount of One
Million Dollars
($1,000,000) bearing
interest at the rate of nine percent (9%)
per annum, convertible
into shares of the
Company's common
stock, $0.001 par
value per share (the "Common Stock"), in substantially the form attached
hereto
as Exhibit B (the
"Notes"). The Company
and the Purchasers
are executing and
delivering this
Agreement in accordance with and in reliance upon the exemption
from securities registration afforded by Section 4(2) of the U.S.
Securities Act
of 1933, as amended, and the rules and regulations promulgated thereunder (the
"Securities Act"),
including Regulation D ("Regulation
D"), and/or upon
such
other exemption from the registration requirements of the Securities Act
as may
be available with respect to any or all of the investments to be
made hereunder.
(b) Upon the following terms and conditions, the Purchasers shall be issued
(i)
Series A Warrants, in
substantially the form
attached hereto as Exhibit C (the
"Series A Warrants"), to purchase the number of shares of Common
Stock set forth
opposite such Purchaser's name on Exhibit A attached hereto at an
exercise price
per share equal to $1.00 and (ii) Series B Warrants, in substantially the form
attached hereto as
Exhibit D (the "Series B Warrants" and, together with the
Series A Warrants, the
"Warrants"), to
purchase the number of shares of Common
Stock set forth opposite such Purchaser's name on Exhibit A attached hereto
at
an exercise price per share equal to $1.25. Each Purchaser shall be entitled
to
receive Series A
Warrants and Series B
Warrants to purchase a number of shares
of Common Stock equal to twenty-five percent (25%) of the number of shares
of
Common Stock issuable
upon conversion of
such Purchaser's
Note. The Warrants
shall expire five (5) years following the issuance thereof.
Section 1.2
Purchase Price
and Closing. Subject to the terms and
conditions hereof,
the Company agrees to
issue and sell to the Purchasers and,
in consideration
of and in express reliance upon the representations,
warranties, covenants,
terms and conditions
of this Agreement, the Purchasers,
-1-
<PAGE>
severally but not
jointly, agree to purchase the Notes and Warrants for an
aggregate purchase
price of One Million
Dollars ($1,000,000) (the "Purchase
Price"). The
Notes and Warrants shall be sold and funded in three separate
closings (each,
a "Closing").
The initial
Closing under this
Agreement (the
"Initial Closing")
shall take place on or about February 13, 2006 (the "Initial
Closing Date") and shall be funded in the amount of Three Hundred
Fifty Thousand
Dollars ($350,000).
The second
Closing under this Agreement (the "Second
Closing") shall take
place no later than five (5) business days after the date
that the Company files the registration statement (the
"Registration Statement")
with the Securities and Exchange Commission (the "Commission")
providing for the
resale of the
Conversion Shares (as
defined below) and the
Warrant Shares (as
defined below) (the "Second Closing Date") and shall be funded
in the amount of
Three Hundred Fifty Thousand Dollars ($350,000). The final Closing under this
Agreement (the "Final Closing") shall take place no later than five
(5) business
days after the Commission declares the Registration Statement effective (the
"Final Closing
Date") and shall be funded in the amount of Three Hundred
Thousand Dollars
($300,000). The
Initial Closing Date, the Second Closing Date
and the Final Closing
Date are sometimes
referred to in this
Agreement as the
"Closing Date". Each
Closing of the purchase and sale of the Notes and Warrants
to be acquired by the
Purchasers from the
Company under this
Agreement shall
take place at the offices of Kramer Levin Naftalis & Frankel
LLP, 1177 Avenue of
the Americas, New
York, New York 10036 at 10:00 a.m., New York time; provided,
that all of the conditions set forth in Article IV hereof and
applicable to each
Closing shall have been fulfilled or waived in accordance
herewith. Subject to
the terms and conditions of this Agreement, at each Closing, the Company shall
deliver or
cause to be delivered to each Purchaser (x) its Note for the
principal amount set
forth opposite
the name of such
Purchaser on Exhibit A
hereto, (y) a Series A
Warrant and Series B Warrant to purchase such number of
shares of Common Stock as is set forth opposite the name of such Purchaser on
Exhibit A attached
hereto and (z) any other deliveries as required by Article
IV. At each Closing,
each Purchaser
shall deliver its
Purchase Price by
wire
transfer to an account designated by the Company.
Section 1.3
Conversion Shares / Warrant Shares. The Company has authorized
and has reserved and covenants to continue to reserve, free of
preemptive rights
and other similar contractual rights of stockholders, a number of
its authorized
but unissued shares of Common Stock equal to one hundred fifty
percent (150%) of
the aggregate number
of shares of Common Stock to effect the conversion of the
Notes and any interest
accrued and
outstanding
thereon and exercise of the
Warrants as of the
Closing Date. Any shares of Common Stock issuable upon
conversion of the Notes and any interest accrued and outstanding on the Notes
are herein referred to
as the "Conversion
Shares". Any shares of
Common Stock
issuable upon exercise
of the Warrants (and such shares when issued) are herein
referred to as the "Warrant Shares". The Notes, the Warrants, the Conversion
Shares and the Warrant Shares are sometimes collectively referred to herein as
the "Securities".
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1
Representations and
Warranties of the
Company. The
Company
hereby represents and warrants to the Purchasers, as of the date
hereof and each
Closing Date (except as set forth on the Schedule of Exceptions
attached hereto
with each numbered
Schedule corresponding
to the section number
herein), as
follows:
-2-
<PAGE>
(a) Organization,
Good Standing and
Power. The Company is
a corporation duly
incorporated, validly
existing and in good standing under the laws of the State
of Delaware and has the requisite corporate power to own, lease and
operate its
properties and assets and to conduct its business as it is now
being conducted.
The Company does not have any Subsidiaries (as defined in Section
2.1(g)) or own
securities of any kind
in any other entity
except as set forth on Schedule
2.1(g) hereto. Except
as set forth on Schedule 2.1(g) hereto, the Company and
each such Subsidiary
(as defined in Section 2.1(g)) is duly qualified as a
foreign corporation to do business and is in good standing in every
jurisdiction
in which the nature of the business conducted or property owned by
it makes such
qualification
necessary except
for any jurisdiction(s) (alone or in the
aggregate) in which
the failure
to be so qualified will not have a Material
Adverse Effect. For
the purposes of this Agreement, "Material Adverse Effect"
means any material
adverse effect on the business, operations, properties,
prospects, or financial condition of the Company and its
Subsidiaries and/or any
condition,
circumstance, or
situation that would prohibit or otherwise
materially interfere
with the ability of the Company to perform any of its
obligations under this Agreement in any material respect.
(b) Authorization;
Enforcement. The
Company has the requisite corporate power
and authority to enter into and perform this Agreement, the Notes,
the Warrants,
the Registration
Rights Agreement by
and among the Company and the Purchasers,
dated as of the date
hereof, substantially
in the form of
Exhibit E attached
hereto (the
"Registration Rights
Agreement"),
the Security
Agreement by and
among the Company and the Purchasers, dated as of the date hereof,
substantially
in the form of Exhibit F attached hereto (the "Security Agreement"), and the
Irrevocable Transfer
Agent Instructions (as defined in Section
3.16 hereof)
(collectively, the "Transaction Documents") and to issue and sell
the Securities
in accordance with the terms hereof. The execution, delivery and performance of
the Transaction
Documents by the Company and the consummation by it of the
transactions
contemplated thereby
have been duly and validly authorized by all
necessary corporate
action, and, except as set forth on
Schedule 2.1(b),
no
further consent or
authorization
of the Company, its Board of Directors or
stockholders is
required. When
executed and delivered by the Company, each of
the Transaction Documents shall constitute a valid and binding
obligation of the
Company enforceable
against the Company in accordance with its terms, except as
such enforceability
may be limited by
applicable bankruptcy,
reorganization,
moratorium, liquidation, conservatorship, receivership or similar laws
relating
to, or affecting generally the enforcement of, creditor's rights
and remedies or
by other equitable principles of general application.
(c) Capitalization.
The authorized capital stock and the issued and outstanding
shares of capital
stock of the Company
as of the date
hereof is set forth
on
Schedule 2.1(c) hereto. All of the outstanding shares of the Common Stock and
any other outstanding
security of the Company have been duly and validly
authorized. Except as
set forth in this Agreement, the Commission Documents (as
defined in Section 2.1(f)) or as set forth on Schedule 2.1(c)
hereto, no shares
of Common Stock or any other security of the Company are
entitled to preemptive
rights or registration
rights and there are no outstanding options, warrants,
-3-
<PAGE>
scrip, rights to
subscribe to, call or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company. Furthermore, except as set forth in this
Agreement and as
set forth on
Schedule 2.1(c) hereto, there are no contracts, commitments,
understandings, or
arrangements by which
the Company is or may become bound to
issue additional
shares of the capital stock of the Company or options,
securities or rights
convertible
into shares of capital
stock of the Company.
Except for customary transfer restrictions contained in agreements entered
into
by the Company in order to sell restricted securities or as
provided on Schedule
2.1(c) hereto,
the Company is not a party to or bound
by any agreement or
understanding granting
registration or
anti-dilution rights to any person with
respect to any of its equity or debt securities. Except as set
forth on Schedule
2.1(c), the Company is not a party to, and it has no knowledge of,
any agreement
or understanding restricting the voting or transfer of any shares
of the capital
stock of the Company.
(d) Issuance
of Securities. The Notes and the Warrants to be issued at each
Closing have been duly
authorized by all necessary corporate action and, when
paid for or issued in
accordance
with the terms
hereof, the Notes shall be
validly issued and
outstanding, free and
clear of all liens,
encumbrances and
rights of refusal of any kind. When the Conversion Shares and
Warrant Shares are
issued and paid for in
accordance with the
terms of this
Agreement and as set
forth in the Notes and
Warrants, such
shares will be duly
authorized
by all
necessary corporate
action and validly issued and outstanding, fully paid and
nonassessable, free
and clear of all liens, encumbrances and rights of
refusal
of any kind and the holders shall be entitled to all rights
accorded to a holder
of Common Stock.
(e) No Conflicts. The
execution, delivery
and performance of the
Transaction
Documents by the
Company, the
performance
by the Company of its
obligations
under the Notes and the consummation by the Company of the transactions
contemplated hereby
and thereby, and the issuance of the Securities as
contemplated hereby,
do not and
will not (i)
violate or conflict with any
provision of the Company's Certificate of Incorporation (the
"Certificate") or
Bylaws (the "Bylaws"),
each as amended to date, or any Subsidiary's comparable
charter documents,
(ii) conflict with, or constitute a default (or an
event
which with notice or
lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, mortgage, deed of trust,
indenture, note, bond,
license, lease
agreement, instrument
or obligation to which the Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries'
respective properties
or assets are bound,
or (iii) result in a
violation of any federal, state, local or foreign statute,
rule, regulation,
order, judgment
or decree (including federal and state securities laws and
regulations)
applicable to the Company or any of its Subsidiaries or by which
any property
or asset of the
Company or any of its
Subsidiaries are bound
or
affected, except,
in all cases,
for such conflicts,
defaults, terminations,
amendments,
acceleration,
cancellations
and violations
as would not,
individually or in the
aggregate,
have a Material
Adverse Effect (other
than
violations pursuant to
clauses (i) or (iii) (with respect to federal and state
securities laws)).
Neither the Company
nor any of its Subsidiaries is required
under federal,
state, foreign or local law, rule or regulation to obtain
any
consent, authorization or order of, or make any filing or
registration with, any
court or governmental agency in order for it to execute,
deliver or perform
any
of its obligations
under the Transaction Documents or issue and sell the
Securities in accordance with the terms hereof (other than any
filings, consents
and approvals which
may be required to be made by the Company under applicable
state and federal
securities laws,
rules or regulations
or any registration
provisions provided in the Registration Rights Agreement).
-4-
<PAGE>
(f) Commission Documents, Financial Statements. The Common
Stock of the Company
is registered pursuant
to Section 12(b) or 12(g) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and except as set forth on
Schedule
2.1(f) hereto,
the Company has timely
filed all reports, schedules, forms,
statements and other
documents required to be filed by it with
the Commission
pursuant to the reporting requirements of the Exchange Act (all of
the foregoing
including filings
incorporated by reference therein being referred to herein as
the "Commission
Documents"). Except as
set forth on Schedule 2.1(f) hereto, at
the times of their respective filings, the Form 10-QSB for the fiscal
quarters
ended September 30,
2005, March 31, 2005
and December 31, 2004
(collectively,
the "Form 10-QSB")
and the Form 10-KSB
for the fiscal year ended June 30, 2005
(the "Form 10-KSB")
complied in all material respects with the requirements
of
the Exchange Act and the rules and regulations of the Commission promulgated
thereunder and
other federal, state and local laws, rules and regulations
applicable to such
documents,
and the Form
10-QSB and Form 10-KSB did not
contain any untrue statement of a material fact or omit to state a
material fact
required to be stated
therein or necessary in order to make the statements
therein, in
light of the circumstances under which they were made, not
misleading. As of their respective dates, except as set forth on
Schedule 2.1(f)
hereto, the
financial statements of the Company included in the Commission
Documents complied
as to form in all material respects with applicable
accounting
requirements and
the published rules and regulations of the
Commission or other applicable rules and regulations with respect
thereto. Such
financial statements
have been prepared in accordance with generally accepted
accounting principles
("GAAP") applied on a consistent basis during the periods
involved (except (i) as may be otherwise indicated in such
financial
statements
or the notes thereto or (ii) in the case of unaudited interim
statements, to the
extent they
may not include footnotes or may be condensed or summary
statements), and
fairly present in all material respects the financial position
of the Company and its
Subsidiaries as of the
dates thereof and the results of
operations and cash
flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).
(g) Subsidiaries.
Schedule 2.1(g) hereto sets forth each
Subsidiary
of the
Company, showing the
jurisdiction of its
incorporation
or organization and
showing the percentage of each person's ownership of the outstanding stock or
other interests
of such Subsidiary. For the purposes of this Agreement,
"Subsidiary" shall
mean any corporation or other entity of which at least a
majority of the securities or other ownership interest having ordinary voting
power (absolutely
or contingently) for the election of directors or other
persons performing
similar functions are at the time owned directly or
indirectly by the
Company and/or any of its other Subsidiaries. All of the
outstanding shares of capital stock of each Subsidiary have been
duly authorized
and validly issued, and are fully paid and nonassessable. Except as
set forth on
Schedule 2.1(g) hereto, there are no outstanding preemptive,
conversion or other
rights, options, warrants or agreements granted or issued by or
binding upon any
Subsidiary for the purchase or acquisition of any shares of capital
stock of any
Subsidiary or
any other securities convertible into, exchangeable for or
evidencing the rights to subscribe for any shares of such capital
stock. Neither
the Company nor any
Subsidiary
is subject to any
obligation
(contingent
or
otherwise) to
repurchase
or otherwise acquire or retire any shares of the
capital stock of any Subsidiary or any convertible securities,
rights, warrants
or options of the type described in the preceding sentence except as set forth
on Schedule 2.1(g)
hereto. Neither the
Company nor any Subsidiary is party to,
nor has any knowledge of, any agreement restricting the voting or transfer of
any shares of the capital stock of any Subsidiary.
-5-
<PAGE>
(h) No Material
Adverse Change. Since June 30, 2005, the Company has not
experienced or
suffered any Material
Adverse Effect, except as disclosed on
Schedule 2.1(h) hereto.
(i) No Undisclosed
Liabilities. Except as
disclosed on Schedule 2.1(i) hereto,
neither the Company nor any of its Subsidiaries has incurred any liabilities,
obligations, claims or
losses (whether
liquidated or unliquidated, secured or
unsecured, absolute, accrued, contingent or otherwise) other than
those incurred
in the ordinary course of the Company's or its Subsidiaries respective
businesses or which, individually or in the aggregate, are not
reasonably likely
to have a Material Adverse Effect.
(j) No Undisclosed
Events or Circumstances. Since June 30, 2005, except as
disclosed on Schedule 2.1(j) hereto, no event or circumstance has occurred or
exists with
respect to the
Company or its
Subsidiaries
or their respective
businesses,
properties, prospects,
operations or
financial condition,
which,
under applicable
law, rule or regulation, requires public disclosure or
announcement by the
Company but which has
not been so publicly
announced or
disclosed.
(k) Indebtedness.
Schedule 2.1(k) hereto sets forth as of the
date hereof all
outstanding secured and unsecured Indebtedness of the Company or
any Subsidiary,
or for which the Company or any Subsidiary has commitments.
For the purposes
of
this Agreement, "Indebtedness" shall mean (a) any liabilities for
borrowed money
or amounts
owed in excess of
$100,000 (other than trade accounts payable
incurred in the ordinary course of business), (b) all guaranties, endorsements
and other contingent
obligations in respect of Indebtedness of others, whether
or not the same are or should be reflected in the Company's balance sheet (or
the notes thereto),
except guaranties by endorsement of negotiable instruments
for deposit or
collection or similar
transactions
in the ordinary
course of
business; and (c) the
present value of any lease payments in excess of $25,000
due under leases required to be capitalized in accordance with
GAAP. Neither the
Company nor any Subsidiary is in default with respect to any
Indebtedness.
(l) Title to Assets. Each of the Company and the Subsidiaries has
good and valid
title to all of its real and personal property reflected in the Commission
Documents, free and
clear of any mortgages, pledges, charges, liens, security
interests or other
encumbrances, except
for those indicated on Schedule 2.1(l)
hereto or such that,
individually or in the aggregate, do not cause a Material
Adverse Effect. Any leases of the Company and each of its
Subsidiaries are valid
and subsisting and in full force and effect.
(m) Actions
Pending. There is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or other
proceeding pending
or, to the knowledge
of the Company, threatened against the Company or any
Subsidiary which
questions the validity
of this Agreement or
any of the other
Transaction Documents or any of the transactions contemplated hereby or thereby
or any action taken or
to be taken pursuant
hereto or thereto.
Except as set
forth in the
Commission Documents
or on Schedule 2.1(m)
hereto, there is no
action, suit, claim,
investigation,
arbitration, alternate
dispute resolution
proceeding or other
proceeding
pending or, to the
knowledge of the Company,
threatened against or
involving the Company,
any Subsidiary or any of their
respective properties
or assets, which individually or in the aggregate, would
reasonably be
expected, if adversely
determined,
to have a Material
Adverse
Effect. There are no
outstanding
orders, judgments, injunctions, awards or
-6-
<PAGE>
decrees of any court,
arbitrator or governmental or regulatory body against the
Company or any
Subsidiary
or any officers or directors of the Company or
Subsidiary in their capacities as such, which individually or in the
aggregate,
could reasonably be expected to have a Material Adverse Effect.
(n) Compliance with
Law. The business of the Company and the Subsidiaries has
been and is presently being conducted in accordance with all
applicable federal,
state and local governmental laws, rules, regulations and
ordinances, except
as
set forth in the Commission Documents or on Schedule 2.1(n) hereto
or such that,
individually or
in the aggregate, the noncompliance therewith could not
reasonably be expected to have a Material Adverse Effect. The Company and each
of its Subsidiaries have all franchises, permits, licenses, consents and other
governmental or
regulatory
authorizations
and approvals necessary for the
conduct of its
business as now being
conducted by it unless the failure to
possess such franchises, permits, licenses, consents and other governmental
or
regulatory authorizations and approvals, individually or in the
aggregate, could
not reasonably be expected to have a Material Adverse Effect.
(o) Taxes. Except as
set forth on Schedule 2.1(o) hereto, the Company and each
of the Subsidiaries
has accurately
prepared and filed all
federal, state and
other tax returns required by law to be filed by it, has paid or
made provisions
for the payment of all taxes shown to be due and all additional
assessments, and
adequate provisions
have been and are reflected in the financial statements of
the Company and the
Subsidiaries for all
current taxes and other charges to
which the Company or any Subsidiary is subject and which are not
currently due
and payable. Except as
disclosed on Schedule 2.1(o) hereto or in the Commission
Documents, none
of the federal income tax returns of the Company or any
Subsidiary have been audited by the Internal Revenue Service. The
Company has no
knowledge of any additional assessments, adjustments or contingent
tax liability
(whether federal
or state) of any nature whatsoever, whether pending or
threatened against the
Company or any
Subsidiary
for any period,
nor of any
basis for any such assessment, adjustment or contingency.
(p) Certain Fees. Except as set forth on Schedule 2.1(p) hereto,
the Company has
not employed any broker or finder or incurred any liability for any
brokerage or
investment banking
fees, commissions,
finders' structuring fees, financial
advisory fees
or other similar fees in connection with the Transaction
Documents.
(q) Disclosure. Except
for the transactions contemplated by this Agreement, the
Company confirms
that neither it nor
any other person acting on its behalf has
provided any of the
Purchasers or their agents or counsel with any information
that constitutes or might constitute material, nonpublic information. To the
best of the Company's knowledge, neither this Agreement or the
Schedules hereto
nor any other documents, certificates or instruments furnished to
the Purchasers
by or on behalf
of the Company or any Subsidiary in connection with the
transactions
contemplated by this Agreement contain any untrue statement of a
material fact or omit
to state a material
fact necessary in
order to make the
statements made herein or therein, in the light of the
circumstances under which
they were made herein or therein, not misleading.
(r) Operation of Business. Except as set forth on Schedule
2.1(r) hereto,
the
Company and
each of the
Subsidiaries
owns or possesses the rights to all
patents, trademarks, domain names (whether or not registered) and
any patentable
-7-
<PAGE>
improvements or
copyrightable
derivative
works
thereof, websites and
intellectual property
rights relating thereto, service marks, trade names,
copyrights, licenses
and authorizations
which are necessary for the conduct of
its business as now conducted without any conflict with the rights
of others.
(s) Environmental
Compliance. To the
best knowledge of the Company, except as
set forth on Schedule 2.1(s) hereto or in the Commission Documents,
the Company
and each of its Subsidiaries have obtained all material approvals,
authorization,
certificates,
consents, licenses,
orders and permits or
other
similar authorizations
of all governmental authorities, or from any other
person, that are
required under any Environmental Laws. "Environmental Laws"
shall mean all
applicable laws
relating to the
protection of the
environment
including,
without limitation,
all requirements pertaining to reporting,
licensing, permitting,
controlling,
investigating
or remediating
emissions,
discharges, releases
or threatened releases of hazardous substances, chemical
substances,
pollutants,
contaminants or toxic substances, materials or wastes,
whether solid,
liquid or gaseous in nature, into the air, surface water,
groundwater or land, or relating to the manufacture, processing, distribution,
use, treatment,
storage,
disposal,
transport
or handling of hazardous
substances, chemical substances, pollutants, contaminants or toxic
substances,
material or wastes,
whether solid, liquid
or gaseous in nature. To the best of
the Company's knowledge, the Company has all necessary
governmental
approvals
required under all Environmental Laws as necessary for the
Company's business or
the business of any of its subsidiaries. To the best of the
Company's knowledge,
the Company and each of its subsidiaries are also in compliance with all
other
limitations,
restrictions,
conditions, standards, requirements, schedules and
timetables required or
imposed under all
Environmental Laws.
Except for such
instances as would not
individually or in the aggregate have a Material Adverse
Effect, there
are no past or present events, conditions, circumstances,
incidents, actions or
omissions relating to or in any way affecting the Company
or its Subsidiaries
that violate or may violate any Environmental Law after the
Initial Closing Date or that may give rise to any environmental liability, or
otherwise form the
basis of any claim, action, demand, suit, proceeding,
hearing, study or
investigation (i) under any Environmental Law, or (ii) based
on or related to the
manufacture,
processing,
distribution, use,
treatment,
storage (including
without limitation
underground
storage tanks),
disposal,
transport or handling, or the emission, discharge, release or
threatened release
of any hazardous substance.
(t) Books and Records;
Internal Accounting Controls. The records and documents
of the Company and its Subsidiaries accurately reflect in all material
respects
the information
relating to the
business of the Company and the Subsidiaries,
the location and collection of their assets, and the nature of all
transactions
giving rise to the
obligations
or accounts
receivable
of the Company or
any
Subsidiary. The
Company and each of its Subsidiaries maintain a system of
internal accounting controls sufficient, in the judgment of the Company's
board
of directors, to provide reasonable assurance that (i) transactions
are executed
in accordance
with management's general or specific authorizations, (ii)
transactions are
recorded as
necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset
accountability,
(iii) access to assets is permitted only in
accordance with
management's
general or specific
authorization
and (iv) the
recorded
accountability for
assets is compared
with the existing assets at
reasonable intervals
and appropriate actions are taken with respect to any
differences.
-8-
<PAGE>
(u) Material Agreements. Except for the Transaction
Documents (with
respect to
clause (i) only), as
disclosed in the
Commission Documents
or as set forth on
Schedule 2.1(u) hereto, or as would not be reasonably
likely to have a Material
Adverse Effect, (i)
the Company and each of its Subsidiaries have performed all
obligations required
to be performed by
them to date under any written or oral
contract, instrument,
agreement, commitment,
obligation, plan or
arrangement,
filed or required to be filed with the Commission (the "Material Agreements"),
(ii) neither the Company nor any of its Subsidiaries has received any
notice of
default under any
Material Agreement
and, (iii) to the best of the
Company's
knowledge, neither the
Company nor any of its
Subsidiaries is in default under
any Material Agreement now in effect.
(v) Transactions with Affiliates. Except as set forth on Schedule
2.1(v) hereto
and in the
Commission
Documents,
there are no loans, leases, agreements,
contracts, royalty
agreements,
management
contracts or
arrangements or other
continuing
transactions between (a) the Company, any Subsidiary or any of
their
respective customers
or suppliers on the
one hand, and (b) on
the other hand,
any officer, employee,
consultant
or director of the
Company, or any of its
Subsidiaries, or any
person owning at least 5% of the outstanding capital stock
of the Company or any
Subsidiary or any member of the immediate family of such
officer, employee,
consultant,
director or
stockholder or any
corporation or
other entity
controlled by such
officer, employee, consultant, director or
stockholder, or a
member of the
immediate family of
such officer,
employee,
consultant, director
or stockholder which, in each case, is required to be
disclosed in the
Commission Documents
or in the Company's
most recently filed
definitive proxy
statement on Schedule 14A, that is not so disclosed in
the
Commission Documents or in such proxy statement.
(w) Securities
Act of 1933.
Based in material
part upon the
representations
herein of the
Purchasers, the
Company has
complied and will comply with all
applicable federal
and state securities laws in connection with the offer,
issuance and sale of the Securities hereunder. Neither the Company nor anyone
acting on its behalf, directly or indirectly, has or will sell,
offer to sell or
solicit offers to buy any of the Securities or similar securities
to, or solicit
offers with
respect thereto from, or enter into any negotiations relating
thereto with,
any person,
or has taken or will
take any action so as to bring
the issuance and sale of any of the Securities under the
registration provisions
of the Securities
Act and applicable
state securities laws, and neither the
Company nor any of its affiliates, nor any person acting on its or
their behalf,
has engaged in any form of general solicitation or general
advertising
(within
the meaning of Regulation D under the Securities Act) in connection with the
offer or sale of any of the Securities.
(x) Employees.
Neither the Company nor any Subsidiary has any collective
bargaining
arrangements or agreements covering any of its employees,
except as
set forth on Schedule
2.1(x) hereto.
Except as set forth on
Schedule 2.1(x)
hereto, neither the
Company nor any
Subsidiary has any
employment
contract,
agreement regarding
proprietary
information,
non-competition
agreement,
non-solicitation
agreement,
confidentiality
agreement, or any
other similar
contract or restrictive covenant, relating to the right of any
officer, employee
or consultant
to be employed or engaged by the Company or such Subsidiary
required to be disclosed in the Commission Documents that is not so
disclosed.
No officer, consultant
or key employee of the Company or any Subsidiary whose
termination, either individually or in the aggregate, would be
reasonably likely
-9-
<PAGE>
to have a Material
Adverse Effect,
has terminated or, to
the knowledge of the
Company, has any
present intention of
terminating
his or her
employment
or
engagement with the Company or any Subsidiary.
(y) Absence
of Certain Developments. Except as set forth in the
Commission
Documents or provided on Schedule 2.1(y) hereto, since June 30, 2005, neither
the Company nor any Subsidiary has:
(i) issued any stock, bonds or other corporate securities or any right,
options
or warrants with respect thereto;
(ii) borrowed any amount in excess of $100,000 or incurred or
become subject to
any other liabilities
in excess of $100,000
(absolute or
contingent)
except
current liabilities
incurred in the ordinary course of business which are
comparable in nature
and amount to the
current liabilities incurred in the
ordinary course of
business during the
comparable portion of
its prior fiscal
year, as adjusted to
reflect the current
nature and volume of the business of
the Company and its Subsidiaries;
(iii) discharged or
satisfied any lien or
encumbrance in excess of $100,000 or
paid any obligation or liability (absolute or contingent) in excess
of $100,000,
other than current liabilities paid in the ordinary course of
business;
(iv) declared or made any payment or distribution of cash or other property to
stockholders with
respect to its stock,
or purchased or redeemed, or made any
agreements so to purchase or redeem, any shares of its capital
stock, in each
case in excess of $50,000 individually or $100,000 in the
aggregate;
(v) sold, assigned or
transferred any other
tangible assets,
or canceled any
debts or claims,
in each case in excess
of $100,000,
except in the
ordinary
course of business;
(vi) sold, assigned or transferred any patent rights, trademarks, trade names,
copyrights, trade
secrets or other intangible assets or intellectual
property
rights in excess of $100,000, or disclosed any proprietary confidential
information to any person except to customers in the ordinary
course of business
or to the Purchasers or their representatives;
(vii) suffered
any material losses or waived any rights of
material value,
whether or not in the ordinary course of business, or suffered the loss of any
material amount of prospective business;
(viii) made any changes in employee compensation except in the ordinary course
of business and consistent with past practices;
(ix) made capital
expenditures or commitments therefor that aggregate in excess
of $100,000;
-10-
<PAGE>
(x) entered into any material transaction, whether or not in the
ordinary course
of business;
(xi) made charitable contributions or pledges in excess of
$10,000;
(xii) suffered any material damage, destruction or casualty loss,
whether or not
covered by insurance;
(xiii) experienced
any material
problems with labor
or
management in connection with the terms and conditions of their
employment; or
(xiv) entered
into an agreement, written or otherwise, to take any of the
foregoing actions.
(z) Public Utility
Holding Company Act and Investment Company Act Status. The
Company is not a "holding company" or a "public utility
company" as such
terms
are defined in the Public Utility Holding Company Act of 1935, as amended.
The
Company is not, and as a result of and immediately upon the Closing
will not be,
an "investment
company" or a company
"controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as
amended.
(aa) ERISA. No
liability to the Pension Benefit Guaranty Corporation has been
incurred with
respect to any Plan by
the Company
or any of its
Subsidiaries
which is or would be materially adverse to the Company and its
Subsidiaries. The
execution and
delivery of this Agreement and the issuance and sale of the
Securities will not involve any transaction which is subject to the
prohibitions
of Section 406 of the
Employee Retirement Income Security Act of 1974, as
amended ("ERISA") or in connection with which a tax could be
imposed pursuant to
Section 4975 of the Internal Revenue Code of 1986, as amended,
provided that, if
any of the Purchasers,
or any person or entity that owns a beneficial interest
in any of the
Purchasers, is an
"employee pension
benefit plan" (within the
meaning of Section
3(2) of ERISA) with respect to which the Company is a "party
in interest" (within the meaning of Section 3(14) of ERISA), the
requirements of
Sections 407(d)(5) and 408(e) of ERISA, if applicable, are met. As used in this
Section 2.1(aa), the
term "Plan" shall mean an "employee pension benefit plan"
(as defined
in Section 3 of ERISA) which is or has been established or
maintained, or to
which contributions
are or have been made, by the Company or
any Subsidiary or by any trade or business, whether or not
incorporated,
which,
together with the
Company or any Subsidiary, is under common control, as
described in Section 414(b) or (c) of the Code.
(bb) Independent
Nature of Purchasers. The Company acknowledges that the
obligations of each Purchaser under the Transaction Documents are several and
not joint with the obligations of any other Purchaser, and no
Purchaser shall be
responsible in any way
for the performance
of the obligations of any other
Purchaser under the Transaction Documents. The Company acknowledges that the
decision of each Purchaser to purchase Securities pursuant to this
Agreement has
been made by such Purchaser independently of any other Purchaser and
independently of any
information,
materials, statements
or opinions as to the
business, affairs,
operations,
assets, properties, liabilities, results of
operations, condition (financial or otherwise) or prospects of the
Company or of
-11-
<PAGE>
its Subsidiaries
which may have made or
given by any other Purchaser or by any
agent or employee of any other Purchaser, and no Purchaser or any of its
agents
or employees shall
have any liability to
any Purchaser
(or any other
person)
relating to or arising
from any such
information,
materials,
statements
or
opinions. The Company
acknowledges
that nothing
contained herein, or in any
Transaction Document,
and no action taken by
any Purchaser pursuant
hereto or
thereto, shall be
deemed to constitute
the Purchasers as a partnership, an
association, a
joint venture or any other kind of entity, or create a
presumption that the
Purchasers are in any
way acting in concert or as a group
with respect
to such obligations or the transactions contemplated by the
Transaction
Documents. The
Company
acknowledges
that
for reasons of
administrative convenience only, the Transaction Documents have
been prepared by
counsel for one of the Purchasers and such counsel does not
represent all of the
Purchasers but only such Purchaser and the other Purchasers have retained their
own individual counsel with respect to the transactions
contemplated hereby. The
Company acknowledges that it has elected to provide all Purchasers
with the same
terms and Transaction
Documents for the convenience of the Company and not
because it was
required or requested
to do so by the
Purchasers. The
Company
acknowledges that such procedure with respect to the Transaction
Documents in no
way creates a presumption that the Purchasers are in any way acting
in concert
or as a group with
respect to the
Transaction Documents
or the transactions
contemplated hereby or thereby.
(cc) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor
any person acting on
its or their behalf,
has directly or indirectly made any
offers or sales of any
security or
solicited any offers to buy any security
under circumstances
that would cause the offering of the Securities pursuant to
this Agreement to be integrated with prior offerings by the Company
for purposes
of the Securities
Act which would prevent the Company from selling the
Securities pursuant to
Regulation D and Rule 506 thereof under the Securities
Act, or any applicable
exchange-related
stockholder approval
provisions, nor
will the Company or any of its affiliates or subsidiaries take any action or
steps that would cause the offering of the Securities to be integrated with
other offerings. The
Company does not have any registration statement pending
before the Commission or currently under the Commission's review and except as
set forth on Schedule
2.1(cc) hereto,
and since July 1,
2005, the Company has
not offered or sold any of its equity securities or debt securities
convertible
into shares of Common Stock.
(dd) Sarbanes-Oxley
Act. The Company is in compliance with the applicable
provisions of the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley
Act"), and the
rules and regulations promulgated thereunder, that are effective,
and intends to
comply with other applicable provisions of the Sarbanes-Oxley Act,
and the rules
and regulations
promulgated
thereunder,
upon
the effectiveness of such
provisions.
(ee) Dilutive
Effect. The Company understands and acknowledges that its
obligation to issue Conversion Shares upon conversion of the Notes
in accordance
with this Agreement and the Notes and its obligations to issue the Warrant
Shares upon the exercise of the Warrants in accordance with this Agreement and
the Warrants, is, in
each case, absolute
and unconditional
regardless of the
dilutive effect that
such issuance may have on the ownership interest of other
stockholders of the Company.
-12-
<PAGE>
(ff) DTC Status. The Company's transfer agent is a participant in
and the Common
Stock is eligible for transfer pursuant to the Depository Trust Company
Automated Securities Transfer Program. The name, address,
telephone number,
fax
number, contact person
and email address of the Company's transfer agent is set
forth on Schedule 2.1(ff) hereto.
(gg) Solvency. Based on the financial condition of the Company as
of the Closing
Date (after giving
effect to the
transactions
contemplated herein
and in the
other Transaction
Documents),
(i) the Company's
fair saleable value of its
assets exceeds
the amount that will
be required to be paid on or in respect of
the Company's existing
debts and other liabilities (including known contingent
liabilities) as they
mature; (ii) the Company's assets do not constitute
unreasonably small
capital to carry on its business for the current fiscal year
as now conducted
and as proposed to be
conducted including
its capital needs
taking into
account the particular capital requirements of the business
conducted by the
Company, and projected capital requirements and capital
availability thereof;
and (iii) the current cash flow of the Company, together
with the proceeds the Company would receive, were it to liquidate all of its
assets, after taking
into account all
anticipated uses of
the cash, would be
sufficient to pay all amounts on or in respect of its debt when
such amounts are
required to be paid.
The Company does not intend to incur
debts beyond its
ability to pay such debts as they mature (taking into account the timing and
amounts of cash to be payable on or in respect of its debt).
Section
2.2.......Representations and Warranties of the Purchasers. Each of
the
Purchasers hereby
represents and warrants to the Company with respect solely to
itself and not with
respect to any other
Purchaser as follows as of the date
hereof and as of each Closing Date:
(a) Organization and Standing of the Purchasers. If the Purchaser is an entity,
such Purchaser is a corporation, limited liability company or partnership
duly
incorporated or organized, validly existing and in good
standing under the laws
of the jurisdiction of its incorporation or organization.
(b) Authorization
and Power. Each Purchaser has the requisite power and
authority to enter into and perform the Transaction Documents and to purchase
the Securities
being sold to it hereunder. The execution, delivery and
performance of the Transaction Documents by each Purchaser and
the consummation
by it of the transactions contemplated hereby have been duly authorized
by all
necessary
corporate or
partnership
action,
and no further consent or
authorization of such
Purchaser or its Board
of Directors,
stockholders,
or
partners, as the case
may be, is required.
When executed and
delivered by the
Purchasers, the other
Transaction Documents
shall constitute valid and binding
obligations of each Purchaser enforceable against such Purchaser in
accordance
with their terms,
except as such
enforceability may be
limited by
applicable
bankruptcy, insolvency,
reorganization, moratorium,
liquidation,
conservatorship,
receivership or
similar laws relating to, or affecting
generally the
enforcement
of, creditor's rights and remedies or by other
equitable principles of general application.
(c) No Conflict. The
execution, delivery
and performance
of the Transaction
Documents by
the Purchaser and the consummation by the Purchaser of the
transactions contemplated thereby and hereby do not and will not
(i) violate any
provision of the Purchaser's charter or organizational documents, (ii) conflict
with, or constitute a default (or an event which with notice or
lapse of time or
-13-
<PAGE>
both would become a default) under, or give to others any rights of
termination,
amendment,
acceleration or cancellation of, any agreement, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument
or obligation
to which the Purchaser is a party or by which the Purchaser's respective
properties or assets
are bound, or (iii)
result in a violation of any federal,
state, local or foreign statute, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations)
applicable to the
Purchaser or by which
any property or asset of the Purchaser are bound or
affected, except, in all cases, other than violations pursuant to
clauses (i) or
(iii) (with respect to federal and state securities laws) above, except, for
such conflicts, defaults, terminations, amendments, acceleration,
cancellations
and violations as would not, individually or in the aggregate, materially and
adversely affect the
Purchaser's ability to
perform its obligations under the
Transaction Documents.
(d) Acquisition
for Investment. Each Purchaser is purchasing the
Securities
solely for its own account and not with a view to or for sale in
connection with
distribution. Each
Purchaser does not
have a present
intention to sell any of
the Securities, nor a
present arrangement
(whether or not
legally binding) or
intention to effect any distribution of any of the
Securities to or through any
person or entity; provided, however, that by making the
representations herein,
such Purchaser
does not agree to hold
the Securities for any
minimum or other
specific term and reserves the right to dispose of the Securities
at any time in
accordance with
Federal and state securities laws applicable to such
disposition. Each
Purchaser acknowledges that it (i) has such knowledge and
experience in financial and business matters such that Purchaser is capable of
evaluating the merits and risks of Purchaser's investment in the Company,
(ii)
is able to bear
the financial risks associated with an investment in the
Securities and (iii)
has been given full access to such records of the Company
and the Subsidiaries
and to the officers of the Company and the Subsidiaries as
it has deemed necessary or appropriate to conduct its due diligence
investigation.
(e) Rule 144.
Each Purchaser understands that the Securities must be held
indefinitely unless
such Securities are registered under the Securities Act or
an exemption from
registration is available. Each Purchaser acknowledges that
such person is
familiar with Rule 144 of the rules and regulations of the
Commission, as amended, promulgated pursuant to the Securities Act
("Rule 144"),
and that such
Purchaser has been
advised that Rule 144 permits resales only
under certain circumstances. Each Purchaser understands that to
the extent that
Rule 144 is not available, such Purchaser will be unable to
sell any Securities
without either registration under the Securities Act or the
existence of another
exemption from such registration requirement.
(f) General. Each
Purchaser understands
that the Securities
are being offered
and sold in reliance on a transactional exemption from the registration
requirements of
federal and state
securities
laws and the Company
is relying
upon the truth and
accuracy of the
representations,
warranties,
agreements,
acknowledgments and
understandings of such
Purchaser set forth herein in order
to determine the
applicability of such
exemptions and the
suitability of such
Purchaser to acquire the Securities. Each Purchaser understands that no United
States federal or
state agency or any
government or
governmental
agency has
passed upon or made any recommendation or endorsement of the
Securities.
-14-
<PAGE>
(g) No General
Solicitation. Each
Purchaser acknowledges
that the
Securities
were not offered
to such Purchaser by means of any form of general or
public
solicitation or general advertising, or publicly disseminated
advertisements or
sales literature,
including (i) any
advertisement,
article, notice or other
communication
published in any
newspaper,
magazine, or similar media, or
broadcast over television or radio, or (ii) any seminar or meeting
to which such
Purchaser was invited
by any of the
foregoing means of
communications.
Each
Purchaser, in making
the decision to purchase the Securities, has relied upon
independent
investigation made by
it and has not relied on any information or
representations made by third parties.
(h) Accredited Investor. Each Purchaser is an "accredited
investor" (as defined
in Rule 501 of Regulation D), and such Purchaser has such
experience in business
and financial matters
that it is capable of evaluating the merits and risks of
an investment in the Securities. Such Purchaser is not required to
be registered
as a broker-dealer
under Section 15 of
the Exchange Act and such Purchaser is
not a broker-dealer.
Each Purchaser acknowledges that an investment in the
Securities is speculative and involves a high degree of risk.
(i) Certain Fees.
The Purchasers have not employed any broker or finder or
incurred any
liability for any brokerage or investment banking fees,
commissions, finders' structuring fees, financial advisory fees or
other similar
fees in connection with the Transaction Documents.
(j) Independent
Investment.
No Purchaser has agreed to act with any other
Purchaser for the
purpose of acquiring,
holding, voting or disposing of the
Securities purchased
hereunder for purposes of Section 13(d) under the Exchange
Act, and each Purchaser is acting independently with respect to its investment
in the Securities.
ARTICLE III
COVENANTS
The Company covenants
with each Purchaser as follows, which covenants
are for the benefit of each Purchaser and their respective
permitted assignees.
Section 3.1.......Securities Compliance. The Company shall notify
the Commission
in accordance with its rules and regulations, of the transactions contemplated
by any of the Transaction Documents and shall take all other
necessary action
and proceedings
as may be required and
permitted by
applicable law, rule
and
regulation, for
the legal and valid issuance of the Securities to the
Purchasers, or their respective subsequent holders.
Section
3.2.......Registration and Listing. So long as a Purchaser
beneficially
owns any of the Securities, the Company shall cause its Common
Stock to continue
to be registered under Sections 12(b) or 12(g) of the Exchange Act,
to comply in
all respects with its reporting and filing obligations under the Exchange Act,
to comply with all
requirements related
to any registration
statement filed
pursuant to this
Agreement,
and to not take any
action or file any
document
(whether or not
permitted by the Securities Act or the rules promulgated
thereunder) to terminate or suspend such registration or to
terminate or suspend
its reporting and filing obligations under the Exchange Act or
Securities Act,
except as permitted
herein. The Company will take all action necessary to
continue the listing or trading of its Common Stock on the OTC
Bulletin Board or
other exchange or
market on which the Common Stock is trading. Subject to the
terms of the Transaction Documents, the Company further covenants that
it will
take such further action as the Purchasers may reasonably request, all to the
extent required
from time to time to enable the Purchasers to sell the
Securities without
registration under the
Securities Act within the limitation
of the exemptions
provided by Rule 144
promulgated under the
Securities Act.
Upon the request of the Purchasers, the Company shall deliver to the
Purchasers
a written
certification of a
duly authorized
officer as to whether it has
complied with such requirements.
-15-
<PAGE>
Section
3.3.......Inspection Rights. Provided same would not be in
violation of
Regulation FD, the Company shall permit, during normal business hours and upon
reasonable request and
reasonable
notice, each Purchaser or any employees,
agents or representatives thereof, so long as such Purchaser
shall be obligated
hereunder to purchase the Notes or shall beneficially own any Conversion
Shares
or Warrant Shares, for purposes reasonably related to such
Purchaser's interests
as a stockholder, to
examine the publicly available, non-confidential records
and books of
account of, and visit and inspect the properties, assets,
operations and
business of the Company and any Subsidiary, and to discuss the
publicly available,
non-confidential
affairs, finances and accounts of the
Company and any Subsidiary with any of its officers, consultants,
directors, and
key employees.
Section 3.4.......Compliance with Laws. The Company shall comply,
and cause each
Subsidiary to comply,
with all applicable laws, rules, regulations and orders,
noncompliance with
which would be reasonably likely to have a Material
Adverse
Effect.
Section
3.5.......Keeping of
Records and Books of Account. The Company shall
keep and cause each Subsidiary to keep adequate records and books
of account, in
which complete
entries will be made in accordance with GAAP consistently
applied,
reflecting all
financial transactions of the Company and its
Subsidiaries, and in
which, for each
fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and
other
purposes in connection with its business shall be made.
Section
3.6.......Reporting
Requirements. If the
Company ceases to file its
periodic reports with the Commission, or if the Commission ceases making these
periodic reports
available via the
Internet without
charge, then the
Company
shall furnish the following to each Purchaser so long as such
Purchaser shall be
obligated hereunder
to purchase the Securities or shall beneficially own
Securities:
(a) Quarterly
Reports filed with the Commission on Form 10-QSB as soon as
practical after the
document is filed with the Commission, and in any event
within five (5) days after the document is filed with the
Commission;
(b) Annual Reports filed with the Commission on Form 10-KSB as soon
as practical
after the document is
filed with the
Commission, and in any
event within five
(5) days after the document is filed with the Commission; and
-16-
<PAGE>
(c) Copies of all notices, information and proxy statements in connection with
any meetings,
that are, in each
case, provided to
holders of shares of Common
Stock,
contemporaneously with
the delivery of such notices or information to
such holders of Common Stock.
Section
3.7.......Other
Agreements. The
Company shall not enter into any
agreement in which the
terms of such
agreement would
restrict or impair the
right or ability to perform of the Company or any Subsidiary under any
Transaction Document.
Section 3.8.......Use
of Proceeds. The net proceeds from the sale of the
Securities shall
be used by the Company for working capital and general
corporate purposes and not to redeem any Common Stock or securities
convertible,
exercisable or
exchangeable
into Common Stock or to settle any
outstanding
litigation.
Section 3.9.......Reporting Status. So long as a Purchaser
beneficially owns any
of the Securities,
the Company
shall timely file all reports
required to be
filed with the
Commission pursuant to
the Exchange Act, and
the Company shall
not terminate
its status as an issuer required to file reports under the
Exchange Act even if the Exchange Act or the rules and regulations thereunder
would permit such termination.
Section
3.10......Disclosure
of Transaction.
The Company shall
issue a press
release describing the
material terms of the transactions contemplated hereby
(the "Press Release")
on the day of the
Initial Closing but in
no event later
than one hour after the Initial Closing; provided, however, that if the Initial
Closing occurs
after 4:00 P.M.
Eastern Time on any Trading Day, the Company
shall issue the Press Release no later than 9:00 A.M. Eastern Time on the first
Trading Day following the Initial Closing Date. The Company shall
also file with
the Commission
a Current Report on Form 8-K (the "Form
8-K") describing
the
material terms
of the transactions contemplated hereby (and attaching as
exhibits thereto this
Agreement,
the form of Note,
the Registration Rights
Agreement, the
Security Agreement,
the form of each
series of Warrant and the
Press Release) as soon as practicable following the Initial Closing Date
but in
no event more than two (2) Trading Days following the Initial Closing Date,
which Press Release and Form 8-K shall be subject to prior review
and comment by
the Purchasers.
"Trading Day" means any day during which the principal exchange
on which the Common Stock is traded shall be open for trading.
Section
3.11......Disclosure of Material Information. The Company covenants
and
agrees that neither it nor any other person acting on its behalf
has provided or
will provide any
Purchaser or its agents or counsel with any information that
the Company believes constitutes material non-public information, unless prior
thereto such Purchaser
shall have executed a
written agreement
regarding the
confidentiality and
use of such information. The Company understands and
confirms that each Purchaser shall be relying on the foregoing
representations
in effecting transactions in securities of the Company.
Section 3.12......Pledge of Securities. The Company acknowledges
and agrees that
the Securities
may be pledged by a
Purchaser in
connection
with a bona fide
margin agreement or
other loan or financing arrangement that is secured by
the
Securities. The pledge
of Securities shall not be deemed to be a transfer, sale
or assignment of the Securities hereunder, and no Purchaser effecting a
pledge
-17-
<PAGE>
of the Securities
shall be required
to provide
the Company with any notice
thereof or otherwise make any delivery to the Company pursuant to
this Agreement
or any other
Transaction Document;
provided that a Purchaser and its
pledgee
shall be required to comply with the provisions of Article V hereof in
order to
effect a sale,
transfer or assignment
of Securities
to such pledgee.
At the
Purchasers' expense,
the Company
hereby agrees to execute and deliver such
documentation as
a pledgee of the Securities may reasonably request in
connection with a pledge of the Securities to such pledgee by a
Purchaser.
Section 3.13......Amendments. The Company shall not amend or waive
any provision
of the Certificate
or Bylaws of the
Company in any way
that would
adversely
affect exercise rights, voting rights, conversion rights, prepayment rights or
redemption rights of the holder of the Notes.
Section
3.14......Distributions. So long as any Notes or Warrants remain
outstanding, the
Company agrees that it shall not (i) declare or pay any
dividends or make any
distributions
to any holder(s) of Common Stock or
(ii)
purchase or otherwise
acquire for value,
directly or
indirectly,
any Common
Stock or other equity security of the Company.
Section 3.15......Reservation of Shares. So long as any of the
Notes or Warrants
remain outstanding,
the Company shall take all action necessary to at all times
have authorized
and reserved for the
purpose of issuance,
one hundred
fifty
percent (150%) of the
aggregate number of shares of Common Stock needed to
provide for the issuance of the Conversion Shares and the Warrant
Shares.
Section
3.16......Transfer Agent Instructions. The Company shall issue
irrevocable
instructions to its
transfer agent,
and any subsequent
transfer
agent, to issue
certificates,
registered in the name
of each Purchaser or its
respective nominee(s),
for the Conversion Shares and the Warrant Shares in such
amounts as specified
from time to time by
each Purchaser
to the Company
upon
conversion of the
Notes or exercise
of the Warrants in the form of Exhibit
G
attached hereto
(the "Irrevocable Transfer Agent Instructions"). Prior to
registration of
the Conversion Shares and the Warrant Shares under the
Securities Act,
all such certificates shall bear the restrictive legend
specified in
Section 5.1 of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions
referred to
in this Section 3.17 will be given by the Company to its transfer
agent and that
the Conversion Shares and Warrant Shares shall otherwise be freely
transferable
on the books and
records of the Company
as and to the extent
provided in this
Agreement and the Registration Rights Agreement. Nothing in this Section 3.16
shall affect in any way each Purchaser's obligations and agreements
set forth in
Section 5.1 to comply with all applicable prospectus delivery
requirements,
if
any, upon resale of the Conversion Shares and the Warrant Shares.
If a Purchaser
provides the Company with an opinion of counsel, in a generally
acceptable form,
to the effect that a public sale, assignment or transfer of the Conversion
Shares or Warrant Shares may be made without registration under the Securities
Act or the Purchaser
provides the Company with reasonable assurances that the
Conversion Shares or Warrant Shares can be sold pursuant to Rule
144 without any
restriction as to the number of securities acquired as of a
particular date that
can then be immediately sold, the Company shall permit the
transfer, and, in the
case of the Conversion
Shares and the Warrant
Shares, promptly instruct its
transfer agent
to issue one or more certificates in such name and in such
denominations as specified by such Purchaser and without any
restrictive legend.
-18-
<PAGE>
The Company
acknowledges
that a breach by it of
its obligations
under this
Section 3.16 will cause irreparable harm to the Purchasers by vitiating the
intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges
that the remedy at law for a breach
of its obligations
under this Section 3.16 will be inadequate and agrees, in the event of a breach
or threatened breach by the Company of the provisions of this
Section 3.16, that
the Purchasers shall be entitled, in addition to all other available
remedies,
to an order and/or
injunction restraining
any breach and
requiring
immediate
issuance and
transfer, without the necessity of showing economic loss and
without any bond or other security being required.
Section
3.17......Disposition of Assets. So long as the Notes remain
outstanding, neither
the Company nor any
subsidiary
shall sell,
transfer or
otherwise dispose of any of its properties, assets and rights
including, without
limitation, its
software and
intellectual property,
to any person except
for
sales of obsolete
assets and sales to customers in the ordinary course of
business or with the prior written consent of the holders of a
majority of the
principal amount of the Notes then outstanding.
Section 3.18......Form
SB-2 Eligibility. The
Company currently meets, and will
take all necessary action to continue to meet, the "registrant
eligibility" and
transaction
requirements set forth
in the general
instructions
to Form SB-2
applicable to
"resale" registrations on Form SB-2 during the Effectiveness
Period (as defined in the Registration Rights Agreement) and the Company
shall
file all reports
required to be filed by the Company with the Commission in a
timely manner so as to maintain such eligibility for the use of
Form SB-2.
Section 3.19......Subsequent Financings.
(a) So long as the Notes remain outstanding, during the period
commencing on the
Final Closing
Date and ending on the date that is twenty-four (24) months
following the Final Closing Date, the Company covenants and agrees to
promptly
notify (in no event
later than five (5) days after making or receiving an
applicable offer) in writing (a "Rights Notice") each Purchaser of
the terms and
conditions of any
proposed any proposed
offer or sale to, or exchange with (or
other type of distribution to) any third party (a "Subsequent
Financing"),
of
Common Stock or any securities convertible, exercisable or exchangeable into
Common Stock,
including
convertible
debt securities (collectively, the
"Financing Securities"). The Rights Notice shall describe, in
reasonable detail,
the proposed
Subsequent
Financing,
the names and
investment
amounts of all
investors
participating in the Subsequent Financing, the proposed closing date
of the Subsequent
Financing,
which shall be within
thirty (30) calendar
days
from the date of the Rights Notice, and all of the terms and
conditions thereof
and proposed
definitive
documentation
to be entered into in connection
therewith. The Rights Notice shall provide each Purchaser an option
(the "Rights
Option") during the
fifteen (15) Trading Days following delivery of the Rights
Notice (the "Option
Period") to inform the Company whether such Purchaser will
purchase up to its pro
rata portion
of the amount of the securities being
offered in such Subsequent Financing on the same, absolute
terms and conditions
as contemplated
by such Subsequent Financing. Each Purchaser shall have an
additional five (5)
Trading Days to fund the purchase of the securities being
offered in such Subsequent Financing. If any Purchaser elects not
to participate
-19-
<PAGE>
in such Subsequent Financing, the other Purchasers may participate
on a pro-rata
basis so long as such
participation in the
aggregate does not exceed the total
amount of the Subsequent Financing. For purposes of this Section,
all references
to "pro rata" means, for any Purchaser electing to participate in such
Subsequent Financing,
the percentage obtained by dividing (x) the
principal
amount of the Notes purchased by such Purchaser at each Closing by
(y) the total
principal amount
of all of the
Notes purchased by all of the participating
Purchasers at
each Closing. Delivery of any Rights Notice constitutes a
representation and
warranty by the Company that there are no other
material
terms and conditions,
arrangements,
agreements or
otherwise except for
those
disclosed in the Rights Notice, to provide additional compensation to any party
participating in any proposed Subsequent Financing, including, but not limited
to, additional
compensation based on
changes in the Purchase Price or any type
of reset or adjustment of a purchase or conversion price or to issue additional
securities at any time after the closing date of a Subsequent
Financing. If the
Company does not
receive notice of exercise of the Rights Option from the
Purchasers within the
Option Period, the
Company shall have the right to close
the Subsequent
Financing on the scheduled closing date with a third party;
provided that all of
the material terms and
conditions of the
closing are the
same as those provided to the Purchasers in the Rights Notice. If
the closing of
the proposed
Subsequent Financing
does not occur on that
date, any closing of
the contemplated Subsequent Financing or any other Subsequent
Financing shall be
subject to all of the
provisions of this Section 3.19(a), including, without
limitation, the
delivery of a new Rights Notice. The provisions of this Section
3.19(a) shall not apply to issuances of securities in a Permitted
Financing (as
defined below).
(b) For purposes of this Agreement, a Permitted Financing (as defined
hereinafter) shall not
be considered
a Subsequent Financing. A "Permitted
Financing" shall mean (i) securities issued (other than for cash) in
connection
with a merger, acquisition, or consolidation, (ii) securities
issued pursuant to
a bona fide firm underwritten public offering of the Company's
securities, (iii)
securities issued
pursuant to the
conversion
or exercise of
convertible
or
exercisable securities
issued or outstanding
on or prior to the date hereof or
issued pursuant to this Agreement and the Notes, (iv) the Warrant Shares, (v)
securities issued in
connection with bona
fide strategic license
agreements,
partnering
arrangements or other consulting services so long as such
issuances
are not for the
purpose of raising
capital, (vi) Common
Stock issued or the
issuance or grants of
options or
warrants to purchase Common Stock to any
employer, officer,
director or advisor of the Company for a
period of two (2)
years following the date of this Agreement so long as the exercise
price of such
options or warrants is
greater than $0.75,
(vii) any warrants issued to the
placement agent and
its designees for the
transactions
contemplated
by this
Agreement, (viii) the
payment of any accrued interest in shares of Common Stock
pursuant to the Notes; and (ix) securities issued to CNET Networks,
Inc.
ARTICLE IV
CONDITIONS
Section 4.1.......Conditions Precedent to the Obligation of the
Company to Close
and to Sell the Securities. The obligation hereunder of the Company
to close and
issue and sell the
Securities to the
Purchasers at each
Closing is subject to
the satisfaction
or waiver,
at or before each
Closing of the
conditions set
forth below. These
conditions
are for the
Company's sole benefit and may be
waived by the Company at any time in its sole discretion.
-20-
<PAGE>
(a) Accuracy
of the Purchasers' Representations and Warranties. The
representations and
warranties of each
Purchaser shall be
true and correct in
all material
respects as of the
date when made and as of each Closing Date as
though made at that time, except for representations and warranties that are
expressly made as of a particular date, which shall be true and correct in
all
material respects as of such date.
(b) Performance
by the Purchasers. Each Purchaser shall have performed,
satisfied and complied in all material respects with all covenants,
agreements
and conditions required by this Agreement to be performed,
satisfied or complied
with by the Purchasers at or prior to each Closing Date.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling
or injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental
authority of competent
jurisdiction which
prohibits the
consummation of any of the transactions contemplated by this
Agreement.
(d) Delivery of Purchase Price. The Purchase Price for the
Securities shall have
been delivered to the Company on each Closing Date.
(e) Delivery of Transaction Documents. The Transaction Documents
shall have been
duly executed and delivered by the Purchasers to the Company.
Section
4.2.......Conditions
Precedent to the
Obligation of the Purchasers to
Close and to Purchase the Securities. The obligation hereunder of
the Purchasers
to purchase the Securities and consummate the transactions
contemplated by
this
Agreement is subject to the satisfaction or waiver,
at or before each
Closing,
of each of the conditions set forth below. These conditions are for the
Purchasers' sole
benefit and may be waived by the
Purchasers
at any time in
their sole discretion.
(a) Accuracy
of the Company's Representations and Warranties. Each of the
representations and
warranties of the
Company in this
Agreement and the other
Transaction Documents
shall be true and correct in all material respects as of
each Closing Date, except for representations and warranties
that speak as of a
particular date, which shall be true and correct in all material
respects as of
such date.
(b) Performance by the Company. The Company shall have performed,
satisfied and
complied in all material respects with all covenants, agreements and conditions
required by this
Agreement to be
performed, satisfied
or complied with by the
Company at or prior to each Closing Date.
(c) No Suspension,
Etc. Trading in the Common Stock shall not have been
suspended by the Commission or the OTC Bulletin Board (except for
any suspension
of trading of limited duration agreed to by the Company,
which suspension
shall
be terminated
prior to the
Initial Closing), and, at any time prior to each
Closing Date, trading in securities generally as reported by
Bloomberg Financial
Markets ("Bloomberg")
shall not have been
suspended or limited, or minimum
prices shall not have been established on securities
whose trades are
reported
by Bloomberg, or on
the New York Stock Exchange, nor shall a banking moratorium
have been declared either by the United States or New York State
authorities.
-21-
<PAGE>
(d) No Injunction. No statute, rule, regulation, executive order,
decree, ruling
or injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental
authority of competent
jurisdiction which
prohibits the
consummation of any of the transactions contemplated by this
Agreement.
(e) No Proceedings
or Litigation. No action, suit or proceeding before any
arbitrator or any
governmental
authority shall have been commenced, and no
investigation by any governmental authority shall have been
threatened,
against
the Company or any Subsidiary, or any of the officers,
directors or
affiliates
of the Company or any
Subsidiary
seeking to
restrain, prevent or change the
transactions
contemplated by this
Agreement, or seeking
damages in connection
with such transactions.
(f) Opinion of Counsel. The Purchasers shall have received an
opinion of counsel
to the Company, dated
the date of each
Closing, substantially
in the form of
Exhibit H hereto, with
such exceptions and
limitations as shall
be reasonably
acceptable to counsel to the Purchasers.
(g) Notes and
Warrants. At or prior
to each Closing,
the Company
shall have
delivered to the Purchasers the Notes (in such denominations as each Purchaser
may request)
and the Warrants (in
such denominations
as each Purchaser may
request).
(h) Secretary's Certificate. The Company shall have delivered
to the Purchasers
a secretary's
certificate,
dated as of each Closing Date, as to (i) the
resolutions adopted
by the Board of Directors approving the transactions
contemplated hereby,
(ii) the Certificate,
(iii) the Bylaws, each as in effect
at the Closing, and
(iv) the authority
and incumbency of the officers of
the
Company executing the Transaction Documents and any other documents
required to
be executed or delivered in connection therewith.
(i) Officer's
Certificate.
On each Closing Date, the Company shall have
delivered to the
Purchasers a
certificate
signed by an executive
officer on
behalf of the Company, dated as of each Closing Date, confirming
the accuracy of
the Company's
representations,
warranties and covenants as of the Closing Date
and confirming the
compliance by the Company with the conditions precedent set
forth in paragraphs
(b)-(e) and (l) of this Section 4.2 as of each Closing Date
(provided that,
with respect to the
matters in paragraphs
(d) and (e) of this
Section 4.2, such confirmation shall be based on the knowledge of
the executive
officer after due inquiry).
(j) Registration
Rights Agreement. As
of the Initial Closing Date, the Company
shall have executed
and delivered the
Registration
Rights Agreement to each
Purchaser.
(k) Security
Agreement. As of the
Initial Closing Date, the Company shall have
executed and delivered the Security Agreement to each
Purchaser.
(l) UCC Financing Statements. As of the Initial Closing Date,
the Company shall
have filed all UCC financing statements in form and substance
satisfactory
to
the Purchasers
at the appropriate offices to create a valid and perfected
security interest in the Collateral (as defined in the Security
Agreement).
-22-
<PAGE>
(m) Material Adverse
Effect. No Material
Adverse Effect shall have occurred at
or before each Closing Date.
(n) Transfer Agent Instructions. As of the Initial Closing Date,
the Irrevocable
Transfer Agent
Instructions, in the
form of Exhibit G attached hereto, shall
have been delivered to the Company's transfer agent.
(o) Asia Pacific
Ventures. All UCC
financing statements
listing Asia
Pacific
Ventures as a secured party and the Company as debtor shall have
been terminated
on or before the Initial Closing Date.
(p) Registration
Statement Filed. With respect to the Second Closing, the
Registration Statement shall have been filed with the
Commission.
(q) Effective
Registration
Statement. With
respect to the Final Closing, the
Registration Statement shall have been declared effective by the
Commission.
ARTICLE V
CERTIFICATE LEGEND
Section 5.1.......Legend. Each certificate representing the
Securities shall be
stamped or otherwise imprinted with a legend substantially in the
following form
(in addition to any legend required by applicable state securities
or "blue sky"
laws):
THE SECURITIES
REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE
NOT BEEN REGISTERED
UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR
ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE
SECURITIES ACT
AND UNDER APPLICABLE STATE SECURITIES LAWS OR
FINANCIALCONTENT, INC.
SHALL HAVE RECEIVED AN
OPINION OF COUNSEL THAT
REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER
THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
The
Company agrees to issue or reissue certificates representing any
of
the Conversion Shares and the Warrant Shares, without the legend
set forth above
if at such time, prior
to making any transfer of any such Conversion Shares or
Warrant Shares,
such holder
thereof shall give
written notice to the
Company
describing the manner
and terms of such transfer and removal as the Company may
reasonably request.
Such proposed transfer and removal will not be
effected
until: (a) either (i) the Company has received an opinion of
counsel reasonably
satisfactory to the
Company, to the effect that the registration of the
Conversion Shares or
Warrant Shares under the Securities Act is not required in
connection with such proposed transfer, (ii) a registration statement
under the
-23-
<PAGE>
Securities Act covering such proposed disposition has been filed by the
Company
with the Commission and has become effective under the Securities
Act, (iii) the
Company has received other evidence reasonably satisfactory to the Company
that
such registration
and qualification under the Securities Act and state
securities laws are
not required, or (iv)
the holder provides the Company with
reasonable assurances
that such security can be sold pursuant to Rule 144 under
the Securities
Act; and (b) either (i) the Company has
received an opinion of
counsel reasonably
satisfactory to the Company, to the effect that registration
or qualification
under the securities or "blue sky" laws of any state is
not
required in connection
with such proposed
disposition, (ii)
compliance
with
applicable state
securities or "blue sky" laws has been effected, or (iii) the
holder provides the
Company with
reasonable assurances
that a valid exemption
exists with respect thereto. The Company will respond to any
such notice from a
holder within three
(3) business
days. In the case of any proposed
transfer
under this Section 5.1, the Company will use reasonable efforts to comply with
any such applicable
state securities or
"blue sky" laws, but shall in no event
be required,
(x) to qualify to do
business in any state where it is not
then
qualified, (y) to take any action that would subject it to tax or
to the general
service of process in any state where it is not then subject, or (z) to comply
with state securities or "blue sky" laws of any state for which
registration by
coordination is
unavailable
to the Company. The restrictions on transfer
contained in this
Section 5.1 shall be in addition to, and not by way of
limitation of, any other restrictions on transfer contained in any
other section
of this Agreement.
Whenever a certificate representing the Conversion Shares or
Warrant Shares is required to be issued to a Purchaser without a
legend, in lieu
of delivering
physical certificates representing the Conversion Shares or
Warrant Shares,
provided the Company's
transfer agent is
participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer
program, the
Company shall use its
reasonable
best efforts to cause
its transfer agent
to
electronically
transmit the Conversion Shares or Warrant Shares to a
Purchaser
by crediting the account of such Purchaser's Prime Broker with DTC through
its
Deposit Withdrawal
Agent Commission ("DWAC") system (to the extent not
inconsistent with any provisions of this Agreement).
ARTICLE VI........
INDEMNIFICATION
Section
6.1.......General
Indemnity. The Company
agrees to indemnify and hold
harmless the Purchasers (and their respective directors,
officers, affiliates,
agents,
successors and
assigns) from and against any and all losses,
liabilities,
deficiencies, costs,
damages and
expenses (including, without
limitation, reasonable
attorneys' fees, charges and disbursements) incurred by
the Purchasers
as a result of any inaccuracy in or breach of the
representations,
warranties or
covenants made by the Company herein. Each
Purchaser severally
but not jointly
agrees to indemnify
and hold harmless the
Company and its directors, officers, affiliates, agents,
successors and assigns
from and against any and all losses, liabilities, deficiencies, costs, damages
and expenses (including, without limitation, reasonable attorneys'
fees, charges
and disbursements)
incurred by the
Company as result of any inaccuracy in or
breach of the
representations,
warranties or covenants made by such Purchaser
herein. The
maximum aggregate liability of each Purchaser pursuant to its
indemnification
obligations under this
Article VI shall not exceed the portion
of the Purchase Price paid by such Purchaser hereunder.
-24-
<PAGE>
Section
6.2.......Indemnification Procedure.
Any party entitled to
indemnification under this Article VI (an "indemnified party") will
give written
notice to the
indemnifying
party of any
matter giving rise to a claim for
indemnification;
provided, that
the failure of any party entitled to
indemnification
hereunder to give
notice as provided
herein shall not relieve
the indemnifying
party of its
obligations under this
Article VI except to the
extent that the
indemnifying party is
actually prejudiced
by such failure to
give notice. In case any such action, proceeding or claim is brought
against an
indemnified party in respect of which indemnification is sought
hereunder, the
indemnifying party
shall be entitled to participate in and, unless in the
reasonable judgment of
the indemnifying party a conflict of interest between it
and the indemnified
party exists with
respect to such
action, proceeding
or
claim (in which case the indemnifying party shall be responsible for the
reasonable fees
and expenses of one separate counsel for the indemnified
parties), to assume the defense thereof with counsel reasonably
satisfactory to
the indemnified
party. In the event that the indemnifying party advises an
indemnified party
that it will not
contest such a claim for indemnification
hereunder, or fails,
within thirty (30)
days of receipt of any indemnification
notice to notify, in writing, such person of its election to
defend, settle or
compromise, at its
sole cost and expense,
any action, proceeding
or claim (or
discontinues its defense at any time after it commences such
defense), then the
indemnified party may, at its option, defend, settle or otherwise
compromise or
pay such action or claim. In any event, unless and until the indemnifying
party
elects in writing to assume and does so assume the
defense of any such
claim,
proceeding or action, the indemnified party's costs and expenses arising
out of
the defense,
settlement or
compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate
fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the
indemnifying party and
shall furnish to the indemnifying party all information
reasonably available
to
the indemnified party
which relates to such action or claim. The indemnifying
party shall keep the
indemnified party
fully apprised at all times as to
the
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying
party elects to defend any such action or claim, then the
indemnified party
shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not
be
liable for any settlement of any action, claim or proceeding effected without
its prior written
consent.
Notwithstanding
anything in this Article VI to the
contrary, the
indemnifying
party shall not,
without the
indemnified
party's
prior written consent, settle or compromise any claim or consent to
entry of any
judgment in
respect thereof which imposes any future obligation on the
indemnified party or which does not include, as an unconditional term thereof,
the giving by the
claimant or the plaintiff to the indemnified party of a
release from all
liability in respect of such claim. The indemnification
obligations to defend the indemnified party required by this
Article VI shall be
made by periodic payments of the amount thereof during the course of
investigation or
defense, as and when
bills are received
or expense, loss,
damage or liability is incurred, so long as the indemnified
party shall refund
such moneys if it is ultimately determined by a court of competent
jurisdiction
that such party was not entitled to indemnification. The indemnity agreements
contained herein
shall be in
addition to (a) any cause of action or
similar
rights of the indemnified party against the indemnifying
party or others,
and
(b) any liabilities
the indemnifying party may be subject to pursuant
to the
law. No indemnifying
party will be liable to the indemnified party under this
-25-
<PAGE>
Agreement to the extent, but only to the extent that a
loss, claim,
damage or
liability is
attributable
to the indemnified party's breach of any of the
representations, warranties or covenants made by such party in this
Agreement or
in the other Transaction Documents.
ARTICLE VII.......
MISCELLANEOUS
Section 7.1.......Fees and Expenses. Each party shall pay the fees and
expenses
of its advisors,
counsel, accountants
and other experts, if any, and all other
expenses, incurred
by such party
incident to the negotiation, preparation,
execution, delivery
and performance of this Agreement; provided, however, that
the Company
shall pay all actual attorneys' fees and expenses (including
disbursements and
out-of-pocket
expenses)
incurred by the Purchasers in
connection with (i) the preparation, negotiation, execution and
delivery of the
Transaction Documents
and the transactions contemplated thereunder, which
payment shall be made at the Initial Closing and shall not exceed
$25,000 (plus
disbursements and out-of-pocket expenses), of which $5,000 has been paid
prior
to the Initial Closing Date, and (ii) any amendments, modifications or waivers
of this Agreement or any of the other Transaction Documents. In addition, the
Company shall pay all reasonable fees and expenses incurred by the
Purchasers in
connection with
the enforcement of this Agreement or any of the other
Transaction Documents,
including, without limitation, all reasonable attorneys'
fees and expenses.
Section 7.2.......Specific Performance; Consent to Jurisdiction;
Venue.
----------------------------------------------------
(a) The Company and the Purchasers acknowledge and agree that
irreparable damage
would occur in the event that any of the provisions of this Agreement or the
other Transaction Documents were not performed in accordance with
their specific
terms or were
otherwise breached.
It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent or
cure breaches of
the provisions
of this Agreement or the other
Transaction
Documents and to
enforce specifically
the terms and provisions hereof or thereof, this being in
addition to any other
remedy to which
any of them may be
entitled by law or
equity.
(b) The parties agree that venue for any dispute arising under this Agreement
will lie exclusively
in the state or federal courts located in New York County,
New York, and the parties irrevocably waive any right to raise forum non
conveniens or any
other argument
that New York is not
the proper venue.
The
parties irrevocably
consent to personal
jurisdiction in the
state and federal
courts of the state of New York. The Company and each Purchaser consent to
process being served
in any such suit,
action or proceeding
by mailing a copy
thereof to such party
at the address
in effect for notices to it under this
Agreement and agrees
that such service
shall constitute
good and sufficient
service of process and notice thereof. Nothing in this Section 7.2 shall
affect
or limit any right to serve process in any other manner permitted by law. The
Company and the Purchasers hereby agree that the prevailing
party in any suit,
action or proceeding arising out of or relating to the Securities, this
Agreement or the other Transaction Documents, shall be entitled to
reimbursement
for reasonable
legal fees from the
non-prevailing
party. The parties hereby
waive all rights to a trial by jury.
Section
7.3.......Entire
Agreement;
Amendment. This
Agreement and the
Transaction Documents
contain the entire
understanding
and agreement of the
-26-
<PAGE>
parties with respect to the matters covered hereby and, except as specifically
set forth herein or in the other Transaction Documents,
neither the Company
nor
any Purchaser make any
representation,
warranty, covenant or
undertaking with
respect to such
matters, and they supersede all prior understandings and
agreements with respect to said subject matter, all of which are merged
herein.
No provision of this
Agreement may be waived or amended other than by a written
instrument signed by the Company and the Purchasers holding at least a majority
of the principal amount of the Notes then held by the Purchasers.
Any amendment
or waiver effected in
accordance
with this Section 7.3 shall be binding
upon
each Purchaser (and their permitted assigns) and the Company.
Section
7.4.......Notices. Any notice, demand, request, waiver or other
communication required
or permitted to be given hereunder shall be in writing
and shall be effective
(a) upon hand
delivery by telecopy
or facsimile at the
address or number designated below (if delivered on a business day
during normal
business hours where
such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day
during normal
business hours
where such notice is to be received) or (b) on the second
business day following
the date of mailing by express courier service, fully
prepaid, addressed to
such address,
or upon actual
receipt of such
mailing,
whichever shall first occur. The addresses for such communications
shall be:
If to the Company:
FinancialContent, Inc.
400 Oyster Point Boulevard, Suite 435
So. San
Francisco,
California
94080
Attention: Chief Executive Officer
Tel. No.: (650) 837-9850 Fax No.: (650)
745-2677
with copies (which copies
shall not constitute notice)
to:
Dave Neville, Esq.
Tel.
No.:
Fax No.:
If
to any Purchaser:
At the address of such
Purchaser set
forth on Exhibit A to this
Agreement,
with
copies
to Purchaser's
counsel as set
forth on Exhibit A or as
specified in writing by such Purchaser with
copies to:
Kramer Levin Naftalis & Frankel LLP
1177 Avenue of the Americas
New York, New York 10036
Attention: Christopher S. Auguste
Tel. No.: (212) 715-9100
Fax No.: (212) 715-8000
-27-
<PAGE>
Any party hereto may
from time to time
change its address for notices
by giving written notice of such changed address to the other party
hereto.
Section 7.5.......Waivers. No waiver by either party of any default
with respect
to any provision,
condition or requirement of this Agreement shall be deemed to
be a continuing
waiver in the future or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of
any party to
exercise any right hereunder in any manner impair the exercise of
any such right
accruing to it
thereafter.
No consideration shall be offered or paid to
any
Purchaser to amend or consent to a waiver or modification of any provision of
any of the Transaction
Documents unless the same consideration is also offered
to all of the parties to the Transaction Documents. This provision
constitutes a
separate right granted to each Purchaser by the Company and shall
not in any way
be construed as the
Purchasers acting in
concert or as a group with respect to
the purchase, disposition or voting of Securities or otherwise.
Section 7.6 Headings.
The article, section and subsection headings in this
Agreement are for
convenience
only and shall not constitute a part of this
Agreement for any
other purpose and
shall not be deemed to limit or affect any
of the provisions hereof.
Section 7.7 Successors
and Assigns. This
Agreement shall be binding upon and
inure to the benefit of the parties and their successors and
assigns. After the
Closing, the
assignment by a party
to this Agreement of
any rights
hereunder
shall not affect the obligations of such party under this
Agreement. Subject
to
Section 5.1 hereof,
the Purchasers
may assign the
Securities
and its rights
under this Agreement
and the other
Transaction Documents
and any other rights
hereto and thereto without the consent of the Company.
Section 7.8 No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties
hereto and their
respective permitted
successors
and
assigns and is not for the benefit of, nor may any provision
hereof be enforced
by, any other person.
Section 7.9 Governing Law. This Agreement shall be governed by and construed
in
accordance with the
internal laws of the State of New York, without giving
effect to any of the
conflicts of law
principles
which would result in the
application of the substantive law of another jurisdiction. This
Agreement shall
not be interpreted or construed with any presumption against the party causing
this Agreement to be drafted.
Section 7.10 Survival. The representations and warranties of the
Company and the
Purchasers shall survive the execution and delivery hereof and the
Closing until
the second anniversary
of the Closing Date, except the agreements and covenants
set forth in Articles I, III, V, VI and VII of this Agreement
shall survive the
execution and delivery hereof and the Closing hereunder.
Section 7.11
Counterparts.
This Agreement may be executed in any number of
counterparts, all of
which taken together
shall constitute one and the same
instrument and shall become effective when counterparts have been
signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart.
Section 7.12 Publicity. The Company agrees that it will
not disclose, and
will
not include in any public announcement, the names of the Purchasers
without the
consent of the Purchasers, which consent shall not be
unreasonably withheld
or
-28-
<PAGE>
delayed, or unless
and until such disclosure is required by law, rule or
applicable regulation,
including without
limitation any disclosure pursuant to
the Registration Statement, and then only to the extent of such
requirement.
Section 7.13
Severability. The
provisions of this Agreement are severable and,
in the event that any court of competent jurisdiction shall determine that any
one or more of the
provisions
or part of the provisions contained in this
Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable
in any respect, such invalidity, illegality or unenforceability
shall not affect
any other provision or
part of a provision of this Agreement and this Agreement
shall be reformed and
construed as if such invalid or illegal or unenforceable
provision, or part of
such provision, had
never been contained herein, so that
such provisions
would be valid,
legal and enforceable to the maximum extent
possible.
Section 7.14 Further Assurances. From and after the date of this
Agreement, upon
the request of the
Purchasers or the
Company, the Company
and each Purchaser
shall execute and deliver such instruments, documents and other writings as
may
be reasonably
necessary or desirable to confirm and carry out and to
effectuate
fully the intent
and purposes of this Agreement and the other Transaction
Documents.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-29-
<PAGE>
IN WITNESS WHEREOF,
the parties hereto have caused this Note and
Warrant Purchase
Agreement to be duly executed by their respective authorized
officers as of the date first above written.
FINANCIALCONTENT, INC.
By: /S/ Wing Yu
---------------
Name: Wing Yu
Title: Chief Executive Officer
PURCHASER:
By: /S/ David Propis
--------------------
Name: David Propis
Title:
Manager, Jade Special Strategy
-30-
<PAGE>
SCHEDULE 2.1
-31-
<PAGE>
ATTACHMENT TO NOTE AND WARRANT PURCHASE
AGREEMENT
Schedule 2.1
c.
900,000,000 authorized
shares of common stock
200,000,000
authorized
shares of preferred stock
Shares of our series A, B & C preferred stock have registration
rights
2004 Employee
Stock Option Plan has
2,700,000 authorized
Warrant to
purchase 1,400,000
shares of our
common stock at $1.30 Warrant to
purchase 380,000 share of our common stock at $0.75
f.
Forms required to be filed under section 16 of the Securities
Exchange
Act of 1934 have not been timely file and or are delinquent
The company is
responding to comments by the SEC to its form 10KSB for
the period ending June
30, 2005 under which the SEC alleges the filing does not
fully comply with
Regulation
S-B and FASB.
Based upon the SEC
comments the
company will be restating its financials for the year ended June 30, 2004
and
2005, and possibly the quarterly reports issued during such
periods, to
reflect
the ...beneficial
conversion
feature of its Series A, B, and C convertible
preferred stock issuances not previously reflected is such
filings.
Form D's under regulation D have not been filed
g.
FinancialContent Services, Inc.
Licensed Delaware Corporation
Licensed California foreign corporation
StreetIQ.com, Inc.
Licensed Delaware Corporation
iTrack, Inc.
inactive
MB Technologies, Inc.
inactive
KingFine, Inc.
inactive
BuckInvestor.com, Inc.
Inactive
-32-
<PAGE>
i. The
Company indebted to Asia Pacific Ventures, an affiliated entity,
in
the amount $237,642 inclusive of interest as of 12/31/05.
Company owes dividend
payments to CNET Networks, Inc. in the approximate
amount of $63,391.00.
k. The
Company indebted to Asia Pacific Ventures, an affiliated entity,
in
the amount $237,642 inclusive of interest as of 12/31/05.
l. Two
UCC-1 Financing
Statement filed June
12, 2002, and June 11, 2002.
Secured party is Asia Pacific Ventures
m. On
November 7, 2005, we received a letter from an attorney
representing
a former consultant to
the Company demanding payment of 300,667 shares
of our common stock
based upon alleged
services provided under the
terms of a contract
entered into
between the parties. The Company
disputes that any
number of shares
are due to this
consultant.
The
contract was
terminated and no
services ever
provided. We have not
recorded a reserve on this matter because we believe the claim to be
without merit and accordingly believe any outcome will not result
in an
adverse judgment against the Company.
On May 21, 2002, we
issued a warrant to purchase 450,000 registrable
shares of our common stock to a firm pursuant to a Services
Agreement
of the same date,
which services we
allege were never
delivered nor
forthcoming. Accordingly, we cancelled this warrant in 2002. The
shares
underlying the warrant have demand registration rights. In 2004, this
firm attempted to
exercise the warrant,
which we have no intention of
honoring. The firm has
threatened litigation to compel us to honor the
warrant. We do not record this warrant as outstanding, and we have not
recorded a reserve in regards to this matter because we believe the
outcome will not
result in an adverse
judgment against the
Company.
Since receiving
an initial letter from an attorney representing
Willow-Cove in
November of 2003
threatening to enforce the warrant by
way of litigation, we have received no renewed threats of
litigation by
Willow-Cove or
its attorneys, though Willow-Cove did attempt to
exercise the warrant in full which we did not honor.
o. The
Company has unpaid
payroll tax payable to the Canadian government
from discontinued
operations in the amount of approximately $117,509,
plus accrued interest from 12/31/02.
r.
Swift, Inc.
has objected to our use of the mark
"swiftir".
We are
currently negotiating a compromise of our use of said mark.
y. i.
The Company's
director's
approved the issuance
of warrants to its
advisors
ff. American
Stock Transfer & Trust Company
59 Maiden Lane
Plaza Level
-33-
<PAGE>
New York, NY 10038
Isaac Kagan
Tel: (718) 921-8293
Fax; (718) 921-8334
-34-
<PAGE>
EXHIBIT A
LIST OF PURCHASERS
Names and Addresses
Investment Amount and Number of
of Purchasers
Warrants Purchased
-35-
<PAGE>
EXHIBIT B
FORM OF NOTE
-36-
<PAGE>
THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR
APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED,
OR OTHERWISE
DISPOSED OF IN THE
ABSENCE OF SUCH
REGISTRATION OR
RECEIPT BY THE MAKER OF AN
OPINION OF COUNSEL IN THE FORM, SUBSTANCE AND SCOPE REASONABLY
SATISFACTORY TO
THE MAKER THAT THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE
UPON CONVERSION
HEREOF MAY BE SOLD,
TRANSFERRED, OR
OTHERWISE DISPOSED OF,
UNDER AN EXEMPTION
FROM REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES LAWS.
FINANCIALCONTENT, INC.
Senior Secured Convertible Promissory Note
due February 13, 2008
No. CN-06-__
$___________
Dated: February 13, 2006
For value received, FinancialContent, Inc., a Delaware corporation (the
"Maker"), hereby
promises to pay to the order of _______________________
(together with its
successors,
representatives,
and permitted
assigns, the
"Holder"), in
accordance with the
terms hereinafter
provided, the principal
amount of
________________________ ($______________), together with interest
thereon. Concurrently
with the issuance of this Note, the Maker is issuing
separate convertible promissory notes (the "Other Notes") to
separate purchasers
(the "Other Holders")
pursuant to the Purchase Agreement (as defined in Section
1.1 hereof).
All payments
under or pursuant to this Note shall be made in United
States
Dollars in
immediately
available funds to the Holder at the address of the
Holder first set forth above or at such other place as the Holder
may designate
from time to time in
writing to the Maker or by wire transfer of funds to the
Holder's account,
instructions for which
are attached hereto as Exhibit A. The
outstanding principal
balance of this Note shall be due and payable on February
13, 2008 (the "Maturity Date") or at such earlier time as provided
herein.
ARTICLE I
Section 1.1
Purchase Agreement. This Note has been executed and delivered
pursuant to the Note and Warrant Purchase Agreement dated as of February 13,
2006 (the "Purchase Agreement") by and among the Maker and the
purchasers listed
therein. Capitalized
terms used and not otherwise defined herein shall have the
meanings set forth for such terms in the Purchase Agreement.
Section 1.2
Interest.
-37-
<PAGE>
(a) Beginning
on the issuance
date of this Note (the
"Issuance Date"), the
outstanding principal balance of this Note shall bear interest, in
arrears, at a
rate per annum equal to nine percent (9%), payable monthly commencing on March
1, 2006 and on the first business day of each following month at the option of
the Maker in (A) cash or (B) registered shares of the Maker's common stock,
$0.001 par value per share (the "Common Stock"); provided that commencing with
the first month following the month that the Registration
Statement is
declared
effective, interest
shall be paid on the
last business day of each month. The
Maker shall
provide irrevocable written notice to the Holder of the form
of
interest payment at least ten (10) days prior to an interest
payment date. If no
such notice is
provided at least ten (10) days prior to an
interest payment
date, the Maker must make the interest payment in cash. In addition,
the Maker
must make interest payments in cash if it is unable to make
interest payments in
registered shares of Common Stock. Notwithstanding the foregoing,
the interest
payment for the three (3) months following the Issuance Date shall
be payable in
cash on the Issuance
Date. The number of shares of Common Stock to be issued as
payment of accrued and unpaid interest shall be determined by dividing
(a) the
total amount of accrued and unpaid interest to be converted into
Common Stock by
(b) the lesser of (i) the Conversion Price (as defined in Section 3.2 hereof)
and (ii) the average
of the Closing
Bid Price (as
defined in Section
1.2(b)
below) for the ten (10) Trading Days immediately preceding the interest payment
date. Interest
shall be computed on
the basis of a 360-day year of twelve (12)
30-day months and
shall accrue
commencing on the Issuance Date. Furthermore,
upon the occurrence
of an Event of Default
(as defined in Section 2.1 hereof),
then to the extent
permitted by law, the Maker will pay interest to the Holder,
payable on demand, on
the outstanding
principal balance of the Note from the
date of the Event of Default until such Event of Default is cured
at the rate of
the lesser of fifteen
percent (15%) and the maximum applicable legal rate per
annum.
(b) The term "Closing Bid Price" shall mean, on any particular date
(i) the last
closing bid price per share of the Common Stock on such date on the
OTC Bulletin
Board or another registered national stock exchange on which the
Common Stock is
then listed,
or if there is no such
price on such date,
then the last closing
bid price on such
exchange or quotation
system on the date
nearest preceding
such date, or (ii) if
the Common Stock is
not listed then on the OTC Bulletin
Board or any registered national stock exchange, the last trading price for a
share of Common Stock
in the
over-the-counter
market, as reported by
the OTC
Bulletin Board or in
the National
Quotation Bureau Incorporated or similar
organization or agency
succeeding to its functions of reporting prices) at the
close of business on such date, or (iii) if the Common Stock is not then
reported by the OTC Bulletin Board or the National Quotation Bureau
Incorporated
(or similar
organization or agency
succeeding
to its functions of reporting
prices), then the average of the "Pink Sheet" quotes for the
relevant conversion
period, as determined
in good faith by the Holder, or (iv) if the Common Stock
is not then publicly
traded the fair market value of a share of Common Stock as
determined by the Holder and reasonably acceptable to the
Maker.
Section 1.3 Security
Agreement. The
obligations
of the Maker
hereunder are
secured by a
continuing
security interest in all of the assets of the
Maker
pursuant to the terms of a security agreement dated as of February 13, 2006
by
and among the Maker,
on the one hand, and the Holder and the Other Holders, on
the other hand.
-38-
<PAGE>
Section 1.4 Payment on Non-Business Days. Whenever any payment to be made
shall
be due on a Saturday,
Sunday or a public holiday under the laws of the State of
New York, such payment may be due on the next succeeding business day and such
next succeeding
day shall be
included in the calculation of the amount of
accrued interest payable on such date.
Section 1.5
Transfer. This Note may be transferred or sold, subject to the
provisions of Section
4.8 of this Note, or pledged, hypothecated or otherwise
granted as security by the Holder.
Section 1.6
Replacement.
Upon receipt of a duly executed, notarized and
unsecured written
statement from the
Holder with respect to the loss, theft or
destruction of this Note (or any replacement hereof) and a standard
indemnity,
or, in the case of a mutilation of this Note, upon surrender and
cancellation of
such Note, the Maker
shall issue a new Note, of like tenor and amount, in lieu
of such lost, stolen, destroyed or mutilated Note.
ARTICLE II
EVENTS OF DEFAULT; REMEDIES
Section 2.1 Events of Default. The occurrence of any of the
following events
shall be an "Event of Default" under this Note:
(a) the Maker shall fail to make any principal or interest
payments on the
date
such payments
are due and such
default is not fully
cured within three (3)
business days after the occurrence thereof; or
(b) the failure of the
Registration Statement
to be declared
effective by the
Securities and Exchange Commission on or prior to the date
which is two hundred
ten (210) days after the Issuance Date; or
(c) the suspension from listing, without subsequent listing on any one of, or
the failure of the Common Stock to be listed on at least one of the
OTC Bulletin
Board, the American
Stock Exchange,
the Nasdaq
National Market, the Nasdaq
SmallCap Market or The New York Stock Exchange, Inc. for a period of seven (7)
consecutive Trading Days; or
(d) the Maker's notice to the Holder, including by way of public
announcement,
at any time, of its
inability to comply (including for any of the reasons
described in Section
3.8(a) hereof) or its
intention not to comply with proper
requests for conversion of this Note into shares of Common Stock;
or
(e) the Maker shall fail to (i) timely deliver the shares of Common
Stock upon
conversion of the
Note or any
interest accrued and unpaid, (ii) file the
Registration Statement
in accordance with the terms of the Registration Rights
Agreement or (iii) make the payment of any fees and/or liquidated
damages under
this Note, the Purchase Agreement or the Registration
Rights Agreement,
which
failure in the
case of items (i) and (iii) of this Section 2.1(e) is not
remedied within four (4) business days after the incurrence
thereof and,
solely
with respect to item (iii) above, after the Holder delivers written notice to
the Maker of the incurrence thereof; or
-39-
<PAGE>
(f) while the
Registration Statement
is required to be
maintained
effective
pursuant to the terms of the Registration Rights Agreement, the
effectiveness of
the Registration Statement lapses for any reason (including,
without limitation,
the issuance of a stop
order) or is
unavailable to the
Holder for sale of the
Registrable Securities
(as defined in the
Registration
Rights Agreement) in
accordance with the terms of the Registration Rights Agreement, and such lapse
or unavailability
continues for a period of ten (10) consecutive Trading Days,
provided that the Maker has not exercised its rights pursuant to
Section 3(n) of
the Registration Rights Agreement; or
(g) default shall be made in the performance or observance of (i) any
material
covenant, condition or agreement contained in this Note (other than
as set forth
in clause (f) of this
Section 2.1) and such
default is not fully
cured within
five (5) business days after the Holder delivers written notice to the Maker of
the occurrence
thereof or (ii) any
material covenant,
condition or
agreement
contained in the Purchase Agreement, the Other Notes, the Registration
Rights
Agreement or any other
Transaction Document
which is not covered
by any other
provisions of this
Section 2.1 and such
default is not fully cured within five
(5) business days after the Holder delivers written notice to the Maker of
the
occurrence thereof; or
(h) any material
representation or
warranty made by the Maker herein or in the
Purchase Agreement,
the Registration
Rights Agreement, the
Other Notes or any
other Transaction
Document shall prove to have been false or incorrect or
breached in a
material respect on the date as of which
made and the
Holder
delivers written notice to the Maker of the occurrence thereof;
or
(i) the Maker shall
(A) default
in any payment of any amount or amounts of
principal of or
interest on any Indebtedness (other than the Indebtedness
hereunder) the aggregate principal amount of which
Indebtedness is in excess of
$100,000 or (B) default in the observance or performance of any
other agreement
or condition relating
to any Indebtedness
or contained in any
instrument
or
agreement evidencing,
securing or relating
thereto, or any other event shall
occur or condition
exist, the effect of which default or other event or
condition is to cause,
or to permit the
holder or holders or
beneficiary
or
beneficiaries of such
Indebtedness
to cause with the giving of notice if
required, such Indebtedness to become due prior to its stated
maturity; or
(j) the Maker
shall (i) apply for or
consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator
of itself
or of all or a substantial part of its property or assets,
(ii) make a
general
assignment for the
benefit of its
creditors, (iii)
commence a voluntary
case
under the United States Bankruptcy Code (as now or hereafter in
effect) or under
the comparable
laws of any
jurisdiction
(foreign or
domestic),
(iv) file a
petition seeking to
take advantage of any bankruptcy, insolvency, moratorium,
reorganization or
other similar law
affecting the
enforcement
of creditors'
rights generally,
(v) acquiesce in
writing to any petition filed against it in
an involuntary case under United States Bankruptcy Code (as now or
hereafter in
effect) or under the comparable laws of any jurisdiction
(foreign or
domestic),
(vi) issue a notice of bankruptcy or winding down of its
operations or issue
a
-40-
<PAGE>
press release
regarding same, or (vii) take any action under the
laws of any
jurisdiction (foreign or domestic) analogous to any of the
foregoing; or
(k) a proceeding or case shall be commenced in respect of the
Maker, without its
application or consent, in any court of competent jurisdiction,
seeking (i) the
liquidation, reorganization, moratorium, dissolution, winding up,
or composition
or readjustment
of its debts,
(ii) the appointment of a trustee, receiver,
custodian, liquidator or the like of it or of all or any
substantial part of its
assets in connection
with the liquidation
or dissolution of the Maker or (iii)
similar relief in
respect of it under any law providing for the relief of
debtors, and such
proceeding
or case described in clause (i),
(ii) or (iii)
shall continue
undismissed, or
unstayed and in effect, for a period of thirty
(30) days or any order for relief shall be entered in an
involuntary case
under
United States
Bankruptcy
Code (as now or
hereafter in effect) or under the
comparable laws of any jurisdiction (foreign or domestic) against the Maker or
action under the laws of any jurisdiction (foreign or domestic)
analogous to any
of the foregoing
shall be taken with
respect to the Maker
and shall continue
undismissed, or unstayed and in effect for a period of thirty (30)
days; or
(l) the failure
of the Maker to
instruct its transfer agent to remove any
legends from shares of
Common Stock
eligible to be sold
under Rule 144 of the
Securities Act and issue such unlegended certificates to the Holder within
five
(5) business
days of the
Holder's request so long as the Holder has
provided
reasonable assurances
to the Maker that such shares of Common Stock can be sold
pursuant to Rule 144; or
(m) the failure of the Maker to pay any amounts due to the Holder
herein or any
other Transaction
Document within five (5) business days of the date such
payments are due and
such default is not
fully cured within two
(2) business
days after the Holder
delivers written
notice to the Maker of
the occurrence
thereof; or
(n) the occurrence of an Event of Default under the Other
Notes.
Section 2.2 Remedies Upon An Event of Default. If an Event of
Default shall have
occurred and shall be continuing, the Holder of this Note may at
any time at its
option, (a) declare
the entire unpaid principal balance of this Note, together
with all interest accrued hereon, due and payable, and thereupon,
the same shall
be accelerated and so due and payable, without presentment,
demand, protest,
or
notice, all of which are hereby expressly unconditionally and
irrevocably waived
by the Maker; provided, however, that upon the occurrence of an
Event of Default
described in (i) Sections 2.1 (j) or (k), the outstanding
principal balance
and
accrued interest
hereunder shall be automatically due and payable and (ii)
Sections 2.1 (b)-(i), demand the prepayment of this Note pursuant
to Section 3.7
hereof, (b) demand
that the principal
amount of this Note then outstanding and
all accrued and unpaid interest thereon shall be converted into
shares of Common
Stock at a Conversion Price per share calculated pursuant to Section 3.1 hereof
assuming that the date that the Event of Default occurs is the
Conversion
Date
(as defined in Section 3.1 hereof), or (c) exercise or otherwise
enforce any one
or more of the Holder's rights, powers, privileges, remedies and
interests under
this Note,
the Purchase Agreement, the Registration Rights Agreement or
applicable law. No
course of delay on the part of the Holder shall operate as a
-41-
<PAGE>
waiver thereof
or otherwise prejudice the right of the Holder. No remedy
conferred hereby shall
be exclusive of any
other remedy referred
to herein or
now or hereafter available at law, in equity, by statute or
otherwise.
ARTICLE III
CONVERSION; ANTIDILUTION; PREPAYMENT
Section 3.1
Conversion Option.
(a) At any time on or after the Issuance Date, this Note shall be convertible
(in whole or in part),
at the option of the Holder (the "Conversion Option"),
into such number of fully paid and non-assessable shares of Common Stock (the
"Conversion Rate")
as is determined by dividing (x) that portion of the
outstanding principal
balance plus any
accrued but unpaid
interest under this
Note as of such date that the Holder elects to convert by (y) the Conversion
Price (as defined in Section 3.2(a) hereof) then in effect on
the date on which
the Holder
faxes a notice of conversion (the "Conversion Notice"), duly
executed, to the Maker (facsimile number (650) 745-2677,
Attn.: Chief
Executive
Officer) (the
"Voluntary
Conversion
Date"), provided, however, that the
Conversion Price shall
be subject to adjustment as described in Sections 3.2(b)
and 3.6 below. The
Holder shall
deliver this Note to
the Maker at the address
designated in the
Purchase Agreement at such time that this Note is fully
converted. With
respect to partial
conversions of this
Note, the Maker
shall
keep written records
of the amount of this Note converted as of each Conversion
Date. Section 3.2 Conversion Price.
(a) The term
"Conversion Price"
shall mean $0.75,
subject to adjustment under
Section 3.6 hereof.
(b) Subject to the terms and provisions of Section 3.7(k) hereof, for a period
of thirty (30) days following the effective date of the
Registration
Statement
(the "Initial
Repricing Period"), in the event that the average
Closing Bid
Price for any ten (10) Trading Day period during the Initial
Repricing Period is
less than the
Conversion Price
then in effect
during the
Initial Repricing
Period (the "Initial
Adjusted Conversion Price"), the Holder shall have the
right to adjust the Conversion Price to a price equal to
seventy-five
percent
(75%) of the Initial
Adjusted Conversion
Price. In addition, once in every
subsequent four (4) month period following the Initial Repricing Period through
the Maturity
Date (a "Subsequent Repricing Period"), in the event that the
average Closing
Bid Price for any ten (10) Trading Day period during a
Subsequent Repricing
Period is less than
the Conversion
Price then in
effect
during a Subsequent
Repricing Period (the "Subsequent Adjusted Conversion
Price"), the Holder
shall have the right
to adjust the
Conversion Price to
a
price equal to seventy-five percent (75%) of the Subsequent
Adjusted Conversion
Price. The Holder
shall provide
written notice to the Maker of its intent
to
adjust the Conversion Price pursuant to this Section 3.2(b).
(c) Notwithstanding
any of the foregoing to the contrary, if during any period
(a "Black-out
Period"), a Holder is
unable to trade any Common Stock issued or
-42-
<PAGE>
issuable upon
conversion of this Note immediately due to the postponement of
filing or delay or suspension of effectiveness of the Registration
Statement or
because the Maker has otherwise informed such Holder that an
existing prospectus
cannot be used at that
time in the
sale or transfer of such Common Stock
(provided that such postponement, delay, suspension or fact that the
prospectus
cannot be used is not due to factors solely within the control of the
Holder of
this Note or due to the Maker exercising its rights under Section 3(n) of the
Registration Rights
Agreement),
such Holder shall have
the option but not the
obligation on any
Conversion
Date within ten (10)
Trading Days following
the
expiration of the Black-out Period of using the Conversion
Price applicable
on
such Conversion Date or any Conversion Price selected by such Holder that
would
have been applicable
had such Conversion
Date been at any
earlier time during
the Black-out Period or within the ten (10) Trading Days
thereafter. In no event
shall the Black-out Period have any effect on the Maturity Date of
this Note.
Section 3.3
Mechanics of Conversion.
(a) Not later than three (3) Trading Days after any Conversion Date, the Maker
or its designated transfer agent, as applicable, shall issue and deliver to the
Depository Trust
Company ("DTC") account on the Holder's behalf via the Deposit
Withdrawal Agent
Commission
System ("DWAC") as specified in the Conversion
Notice, registered in
the name of the Holder or its designee, for the number of
shares of Common Stock to which the Holder shall be entitled. In the
alternative, not later
than three (3) Trading Days after any Conversion Date,
the Maker shall deliver to the applicable Holder by express courier a
certificate or
certificates
which shall be free of restrictive legends and
trading restrictions
(other than those
required by Section 5.1 of the Purchase
Agreement) representing the number of shares of Common Stock being
acquired upon
the conversion of this Note (the "Delivery Date"). Notwithstanding
the foregoing
to the contrary,
the Maker or its
transfer agent shall only be obligated to
issue and deliver
the shares to the DTC on the
Holder's behalf via DWAC (or
certificates free of
restrictive legends)
if such conversion is
in connection
with a sale and the Holder has complied with the applicable
prospectus
delivery
requirements (as
evidenced by documentation furnished to and reasonably
satisfactory to the
Maker). If in the case of any Conversion Notice such
certificate or
certificates
are not delivered to or as directed by the
applicable Holder by
the Delivery Date, the Holder shall be entitled by written
notice to the Maker at any time on or before its receipt of such
certificate or
certificates
thereafter, to rescind
such conversion, in
which event the Maker
shall immediately return this Note tendered for conversion,
whereupon the
Maker
and the Holder shall each be restored to their respective positions
immediately
prior to the delivery
of such notice of revocation, except that any amounts
described in Sections 3.3(b) and (c) shall be payable through the
date notice of
rescission is given to the Maker.
(b) The Maker
understands that a
delay in the delivery of the shares of Common
Stock upon conversion
of this Note beyond
the Delivery
Date could
result in
economic loss to the
Holder. If the Maker fails to deliver to
the Holder such
shares via DWAC or a
certificate
or certificates pursuant to this Section
hereunder by the Delivery Date, the Maker shall pay to such Holder,
in cash, an
amount per Trading Day for each Trading Day until such shares are
delivered via
DWAC or certificates
are delivered,
together with interest on such amount at a
rate of 10% per annum,
accruing until such
amount and any accrued interest
thereon is paid in full, equal to the greater of (A) (i) 1% of the aggregate
principal amount of
the Notes requested to
be converted for the first five (5)
Trading Days after the
Delivery Date and (ii) 2% of the
aggregate principal
-43-
<PAGE>
amount of the Notes
requested to be converted for each Trading Day thereafter
and (B) $2,000 per day (which amount shall be paid as liquidated
damages and not
as a penalty). Nothing
herein shall limit a Holder's
right to pursue
actual
damages for the Maker's failure to deliver certificates representing shares of
Common Stock upon conversion within the period specified herein
and such Holder
shall have the right to pursue all remedies available to it at law or in
equity
(including,
without limitation,
a decree of specific performance and/or
injunctive relief).
Notwithstanding
anything to the contrary contained herein,
the Holder shall be
entitled to withdraw a
Conversion
Notice, and upon such
withdrawal the Maker
shall only be
obligated to pay the liquidated damages
accrued in accordance
with this Section
3.3(b) through the date the Conversion
Notice is withdrawn.
(c) In addition to any other rights available to the Holder,
if the Maker fails
to cause its
transfer agent to transmit to the Holder a certificate or
certificates representing the shares of Common Stock issuable upon
conversion of
this Note on or before the Delivery Date, and if after such date the Holder
is
required by its broker to purchase (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by the
Holder of the
shares of Common Stock
issuable upon
conversion of this
Note which the Holder
anticipated receiving upon such exercise (a "Buy-In"), then the Maker shall (1)
pay in cash to the Holder the amount by which (x) the Holder's total purchase
price (including brokerage commissions, if any) for the shares of Common
Stock
so purchased exceeds
(y) the amount
obtained by multiplying (A) the number of
shares of Common Stock issuable upon conversion of this Note that the
Maker was
required to deliver to the Holder in connection with the conversion at issue
times (B) the
price at which the sell order giving rise to such purchase
obligation was executed, and (2) at the option of the
Holder, either
reinstate
the portion
of the Note and
equivalent
number of shares of
Common Stock for
which such
conversion
was not honored or deliver to the Holder
the number of
shares of Common Stock that would have been issued had the Maker
timely complied
with its conversion
and delivery
obligations hereunder.
For example,
if the
Holder purchases
Common Stock having a total purchase price of $11,000 to cover
a Buy-In with respect to an attempted conversion of shares of Common
Stock with
an aggregate sale
price giving rise to
such purchase
obligation
of $10,000,
under clause
(1) of the
immediately
preceding sentence the Maker shall be
required to pay the Holder $1,000. The Holder shall provide the Maker written
notice indicating
the amounts
payable to the Holder
in respect of the Buy-In,
together with applicable confirmations and other evidence
reasonably
requested
by the Maker. Nothing
herein shall limit a
Holder's right to
pursue any other
remedies available
to it hereunder, at law or in equity including, without
limitation, a decree
of specific
performance
and/or injunctive relief with
respect to the Maker's
failure to timely deliver certificates representing
shares of Common Stock upon conversion of this Note as required
pursuant to the
terms hereof.
Section 3.4
Ownership Cap and Certain Conversion Restrictions.
(a) Notwithstanding
anything to the contrary set forth in Section 3 of this
Note, at no time may
the Holder
convert all or a portion of this Note if
the
number of shares of Common Stock to be issued pursuant to such
conversion would
exceed, when
aggregated
with all other
shares of Common
Stock owned by the
Holder at such time,
the number of shares of Common Stock which would result in
the Holder
beneficially owning
(as determined in accordance with Section 13(d)
-44-
<PAGE>
of the Exchange
Act and the
rules thereunder) more than 4.9% of all of the
Common Stock outstanding at such time; provided, however, that upon the Holder
providing the Maker
with sixty-one
(61) days notice
(pursuant to Section
4.1
hereof) (the "Waiver
Notice") that the
Holder would like to waive this Section
3.4(a) with regard to any or all shares of Common Stock issuable
upon conversion
of this Note, this
Section 3.4(a) will be
of no force or effect with regard to
all or a portion of the Note referenced in the Waiver Notice.
(b) Notwithstanding
anything to the contrary set forth in Section 3 of this
Note, at no time may
the Holder
convert all or a portion of this Note if
the
number of shares of Common Stock to be issued pursuant to such
conversion, when
aggregated with all
other shares of Common
Stock owned by the Holder at such
time, would
result in the Holder beneficially owning (as determined in
accordance with
Section 13(d) of the Exchange Act and the rules thereunder) in
excess of 9.9% of the
then issued
and outstanding shares of Common Stock
outstanding at such time; provided, however, that upon the Holder
providing the
Maker with a Waiver Notice that the Holder would like to waive
Section 3.4(b) of
this Note with
regard to any or all
shares of Common Stock issuable upon
conversion of this Note, this Section 3.4(b) shall be of no force
or effect with
regard to all or a portion of the Note referenced in the Waiver
Notice.
Section 3.5
Intentionally Omitted.
Section 3.6
Adjustment of Conversion Price.
(a) The Conversion
Price shall be subject
to adjustment
from time to time
as
follows:
(i) Adjustments for
Stock Splits and
Combinations. If
the
Maker shall at any time or from time to time after the Issuance
Date, effect a
stock split of the outstanding Common Stock, the applicable
Conversion Price
in
effect immediately prior to the stock split shall be
proportionately
decreased.
If the Maker shall at
any time or from time to time after the Issuance Date,
combine the outstanding shares of Common Stock, the applicable
Conversion Price
in effect immediately prior to the combination shall be proportionately
increased. Any
adjustments under this
Section 3.6(a)(i)
shall be effective at
the close of business on the date the stock split or combination
occurs.
(ii) Adjustments for Certain Dividends and Distributions. If
the Maker shall at any time or from time to time after the Issuance
Date, make
or issue or set a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in
shares of Common
Stock, then,
and in each
event, the applicable Conversion Price in effect
immediately prior
to such event shall be decreased as of the time of such
issuance or, in the
event such record
date shall have been
fixed, as of the
close of business on such record date, by multiplying, the
applicable Conversion
Price then in effect by a fraction:
(1) the numerator
of which shall be the total
number of shares of Common Stock issued and outstanding immediately
prior to the
time of such issuance or the close of business on such record date;
and
-45-
<PAGE>
(2) the
denominator
of which shall be the total
number of shares of Common Stock issued and outstanding immediately
prior to the
time of such issuance
or the close of
business on such record date plus the
number of shares of
Common Stock
issuable in payment of such dividend or
distribution.
(iii) Adjustment for Other Dividends and Distributions. If
the Maker shall at any time or from time to time after the Issuance
Date, make
or issue or set a record date for the determination of holders of Common Stock
entitled to
receive a dividend or other distribution payable in other than
shares of Common Stock, then, and in each event, an appropriate
revision to the
applicable Conversion
Price shall be made and provision shall be made (by
adjustments of the
Conversion
Price or otherwise) so
that the holders of this
Note shall receive upon conversions thereof, in addition to the
number of shares
of Common Stock receivable thereon, the number of securities of the
Maker which
they would have received had this Note been converted into Common Stock on the
date of such event and had thereafter, during the period from the date of
such
event to and including the Conversion Date, retained such securities
(together
with any distributions
payable thereon during such period), giving application
to all adjustments called for during such period under this Section
3.6(a)(iii)
with respect
to the rights of the
holders of this Note and the Other
Notes;
provided, however,
that if such
record date shall have been fixed and such
dividend is not fully paid or if such distribution is not fully
made on the date
fixed therefor,
the Conversion Price shall be adjusted pursuant to this
paragraph as of the time of actual payment of such dividends or
distributions.
(iv) Adjustments
for Reclassification,
Exchange
or
Substitution. If the
Common Stock issuable upon conversion of this Note at any
time or from time to time after the Issuance Date shall be changed to the
same
or different
number of shares of
any class or classes
of stock, whether by
reclassification,
exchange, substitution
or otherwise (other
than by way of a
stock split or combination of shares or stock dividends provided
for in Sections
3.6(a)(i), (ii) and (iii), or a reorganization, merger, consolidation,
or sale
of assets provided
for in Section
3.6(a)(v)),
then, and in each event, an
appropriate revision
to the Conversion Price shall be made and provisions shall
be made (by adjustments of the Conversion Price or otherwise) so
that the Holder
shall have the right thereafter to convert this Note into the kind
and amount of
shares of stock and other securities receivable upon
reclassification, exchange,
substitution or other change, by holders of the number of shares of
Common Stock
into which
such Note might have been converted immediately prior to such
reclassification, exchange, substitution or other change, all
subject to further
adjustment as provided herein.
(v) Adjustments for Reorganization, Merger, Consolidation or
Sales of Assets.
If at any time or from
time to time after the
Issuance Date
there shall be a
capital reorganization
of the Maker
(other than by way of
a
stock split or
combination
of shares or stock dividends or distributions
provided for in
Section 3.6(a)(i), (ii) and (iii), or a reclassification,
exchange or
substitution of shares
provided for in Section 3.6(a)(iv)), or a
merger or consolidation of the Maker with or into another
corporation where
the
holders of outstanding
voting securities
prior to such merger or consolidation
do not own over fifty percent (50%) of the outstanding voting securities of the
merged or consolidated
entity, immediately
after such merger or consolidation,
or the sale of all or substantially all of the Maker's properties or assets to
any other person (an "Organic Change"), then as a part of such Organic
Change,
(A) if the surviving
entity in any such Organic Change is a public company that
is registered pursuant to the Securities Exchange Act of 1934, as amended,
and
its common stock is listed or quoted on a national exchange or the OTC Bulletin
Board, an appropriate revision to the Conversion Price shall be made and
provision shall be made (by adjustments of the Conversion Price or
otherwise) so
that the Holder shall
have the right
thereafter to convert
such Note into the
kind and amount of shares of stock and other securities or property
of the Maker
or any successor
corporation
resulting from Organic Change, and (B) if the
-46-
<PAGE>
surviving entity in
any such Organic
Change is not a public
company that is
registered pursuant to
the Securities
Exchange Act of 1934, as amended, or its
common stock is not listed or quoted on a national exchange or the OTC Bulletin
Board, the Holder shall have the right to demand prepayment
pursuant to
Section
3.7(b) hereof. In any
such case, appropriate
adjustment
shall be made in
the
application of the
provisions
of this Section
3.6(a)(v) with respect to the
rights of the Holder after the Organic Change to the end that the
provisions of
this Section 3.6(a)(v)
(including any
adjustment in the applicable Conversion
Price then in effect
and the number of shares of stock or other
securities
deliverable upon
conversion of this
Note and the Other Notes) shall be applied
after that event in as nearly an equivalent manner as may be
practicable.
(vi) Adjustments for Issuance of Additional Shares of Common
Stock.
(1) In the event the Maker, shall, at any time, from time to
time, issue or sell
any shares of additional shares of common stock
(otherwise
than as provided in the foregoing subsections (i) through (v) of this
Section
3.6(a) or pursuant to Common Stock Equivalents (hereafter defined) granted or
issued prior to the Issuance Date) ("Additional Shares of Common Stock"),
at a
price per share
less than the Conversion Price then in effect or without
consideration, then
the Conversion
Price upon each such issuance shall be
adjusted to that price
(rounded to the nearest cent) determined by multiplying
each of the Conversion Price then in effect by a fraction:
(A) the numerator
of which shall be
equal to the
sum of (x) the number of shares of Common Stock outstanding
immediately prior to
the issuance of such
Additional
Shares of Common Stock
plus (y) the number of
shares of Common Stock
(rounded to the nearest whole share) which the aggregate
consideration for the
total number of such Additional Shares of Common Stock so
issued would purchase at a price per share equal to the Conversion
Price then in
effect, and
(B) the denominator of which shall be equal to the
number of shares of Common Stock outstanding immediately after the issuance
of
such Additional Shares of Common Stock.
(2) The provisions of
paragraph (1) of
Section 3.6(a)(vi)
shall not apply to any issuance of Additional Shares of Common Stock for
which
an adjustment is provided under Section 3.6(a)(vii). No adjustment
of the number
of shares of Common Stock for which this Note shall be convertible
shall be made
under paragraph (1) of
Section 3.6(a)(vi)
upon the issuance of
any Additional
Shares of Common Stock
which are issued
pursuant to the exercise of any Common
Stock Equivalents,
if any such adjustment
shall previously have been made upon
the issuance of such Common Stock Equivalents pursuant to Section 3.6(a)(vii).
(vii) Issuance of Common Stock Equivalents. If the Maker, at
any time after the Issuance Date, shall issue any securities
convertible into or
exchangeable
for, directly
or indirectly, Common Stock ("Convertible
Securities"), other
than the Notes, or any
rights or warrants or options to
purchase any such Common Stock or Convertible Securities, shall be issued or
sold (collectively,
the "Common Stock
Equivalents")
and the aggregate of
the
price per share for
which Additional
Shares of Common
Stock may be
issuable
thereafter pursuant to
such Common Stock
Equivalent,
plus the consideration
received by the Maker for issuance of such Common Stock
Equivalent
divided by
the number of shares of Common Stock issuable pursuant to such Common Stock
Equivalent (the
"Aggregate
Per Common
Share Price") shall be less than the
applicable Conversion
Price then in effect,
or if, after any such
issuance of
Common Stock
Equivalents, the price
per share for which
Additional Shares
of
Common Stock may be issuable thereafter is amended or adjusted,
and such price
as so amended shall
make the Aggregate Per
Share Common Price be less than the
applicable Conversion
Price in effect at the time of such amendment or
adjustment, then the
applicable
Conversion
Price upon each such
issuance or
amendment shall be adjusted as provided in the first sentence of
subsection (vi)
of this Section 3.6(a)
on the basis that (1) the maximum number of Additional
Shares of Common Stock
issuable pursuant to
all such Common Stock
Equivalents
shall be deemed to have been issued (whether or not such Common Stock
Equivalents are actually then exercisable, convertible or exchangeable in
whole
or in part) as of the
earlier of (A) the
date on which the Maker shall enter
into a firm contract
for the issuance of such Common Stock Equivalent, or (B)
the date of actual
issuance of such Common Stock Equivalent. No adjustment of
the applicable
Conversion Price shall
be made under this subsection (vii) upon
the issuance
of any Convertible Security which is issued pursuant to the
exercise of any warrants or other subscription or purchase rights
therefor, if
any adjustment
shall previously have been made to the exercise
price of such
warrants then in
effect upon the
issuance of such
warrants or other rights
pursuant to this subsection (vii). No adjustment shall be made to
the Conversion
Price upon the issuance of Common Stock pursuant to the exercise,
conversion or
exchange of any
Convertible
Security or Common Stock Equivalent where an
adjustment to the
Conversion
Price was made as a result of the
issuance or
purchase of any Convertible Security or Common Stock
Equivalent.
(viii) Consideration for Stock. In case any shares of Common
Stock or any Common Stock Equivalents shall be issued or sold:
(1) in connection with any merger or consolidation
in which the Maker is the surviving corporation (other than any
consolidation or
merger in which the previously outstanding shares of Common Stock of the
Maker
shall be changed to or exchanged for the stock or other
securities
of another
corporation), the
amount of
consideration therefor
shall be, deemed to be the
fair value, as determined reasonably and in good faith by the Board
of Directors
of the Maker, of such
portion of the assets
and business of the
nonsurviving
corporation as such
Board may determine to
be attributable
to such shares of
Common Stock, Convertible Securities, rights or warrants or
options, as the case
may be; or
(2) in the event of any consolidation or merger of
the Maker in which the Maker is not the surviving corporation or in which the
-47-
<PAGE>
previously outstanding shares of Common Stock of the Maker shall be
changed into
or exchanged for the stock or other securities of another
corporation, or in the
event of any sale of all or substantially all of the assets of the Maker for
stock or other securities of any corporation, the Maker shall be deemed to
have
issued a number of shares of its Common Stock for stock or
securities
or other
property of the other
corporation computed
on the basis of the actual exchange
ratio on which the transaction was predicated, and for a consideration equal
to
the fair market value on the date of such
transaction
of all such
stock or
securities or other property of the other corporation. If any such calculation
results in adjustment
of the applicable Conversion Price, or the number of
shares of Common Stock issuable upon conversion of the Notes, the
determination
of the applicable
Conversion
Price or the
number of shares of Common Stock
issuable upon
conversion
of the Notes immediately prior to such merger,
consolidation or sale,
shall be made after
giving effect to such adjustment of
the number of shares of Common Stock issuable upon conversion of the Notes.
In
the event Common Stock is issued with other shares or securities or
other assets
of the Maker for consideration which covers both, the consideration
computed as
provided in this Section 3.6(viii) shall be allocated among
such securities and
assets as determined
in good faith by the Board of Directors of the Maker.
(b) Record Date. In
case the Maker shall take record of the
holders of its Common Stock for the purpose of entitling
them to subscribe
for
or purchase Common Stock or Convertible Securities, then the date of the issue
or sale of the shares of Common Stock shall be deemed to be such
record date.
(c) Certain Issues Excepted. Anything herein to the contrary
notwithstanding, the
Maker shall not be required to make any adjustment to the
Conversion Price in connection with (i) securities issued (other than for cash)
in connection with a
merger, acquisition,
or consolidation, (ii) securities
issued pursuant to a bona fide firm underwritten public offering of the Maker's
securities, (iii)
securities
issued pursuant to the
conversion or exercise of
convertible or excercisable securities issued or outstanding
on or prior to the
date hereof or issued
pursuant to the
Purchase Agreement,
(iv) the shares of
Common Stock issuable upon the exercise of Warrants, (v) securities issued in
connection with bona fide strategic license agreements,
partnering
arrangements
or other consulting
services so long as
such issuances are not for the purpose
of raising capital,
(vi) Common Stock issued or the issuance or grants of
options or warrants to purchase Common Stock to any employer,
officer, director
or advisor of the Company for a period of two (2) years
following the Issuance
Date so long as the
exercise price of such
options or warrants is greater than
$0.75, (vii) any
warrants issued to the
placement agent and
its designees for
the transactions
contemplated by the Purchase Agreement, and (viii) the payment
of any accrued
interest in shares of Common Stock pursuant to this Note or the
Other Notes, and (ix) securities issued to CNET Networks, Inc.
(d) No Impairment.
The Maker shall not,
by amendment of
its
Certificate of Incorporation or through any reorganization,
transfer of
assets,
consolidation, merger,
dissolution,
issue or sale of
securities or any
other
voluntary action, avoid or seek to avoid the observance or
performance of any of
the terms to be observed or performed hereunder by the Maker, but will at all
-48-
<PAGE>
times in good faith,
assist in the carrying out of all the provisions of this
Section 3.6
and in the
taking of all such action as may be necessary or
appropriate in order
to protect the
Conversion
Rights of the Holder
against
impairment. In the
event a Holder shall
elect to convert any Notes as provided
herein, the Maker
cannot refuse
conversion based on any claim that such Holder
or any one associated
or affiliated with such Holder has been engaged
in any
violation of law,
violation of an
agreement to which such Holder is a party or
for any reason
whatsoever,
unless, an injunction from a court, or notice,
restraining and or
adjoining conversion of all or of said Notes shall have
issued and the Maker
posts a surety bond
for the benefit of
such Holder in an
amount equal to one hundred thirty percent (130%) of the amount of
the Notes the
Holder has elected to
convert, which bond shall remain in effect until the
completion of
arbitration/litigation
of the dispute and the
proceeds of which
shall be payable to such Holder (as liquidated damages) in the event it
obtains
judgment.
(e) Certificates as to Adjustments. Upon occurrence of each
adjustment or readjustment of the Conversion Price or number of
shares of Common
Stock issuable
upon conversion of this Note pursuant
to this Section 3.6, the
Maker at its expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to the Holder a
certificate setting
forth such adjustment and readjustment, showing in detail the facts upon
which
such adjustment or readjustment is based. The Maker shall,
upon written
request
of the Holder, at any
time, furnish or cause
to be furnished
to the Holder a
like certificate
setting
forth such adjustments and readjustments, the
applicable Conversion
Price in effect at the
time, and the number of shares of
Common Stock and the amount, if any, of other securities or property
which at
the time would be received upon the conversion of this Note.
Notwithstanding the
foregoing, the Maker shall not be obligated to deliver a
certificate unless such
certificate would
reflect an increase or
decrease of at least one percent (1%)
of such adjusted amount.
(f) Issue Taxes.
The Maker shall pay any and all issue
and
other taxes, excluding federal, state or local income taxes, that
may be payable
in respect of any issue or delivery of shares of Common Stock on
conversion
of
this Note pursuant
thereto; provided, however, that the Maker shall not be
obligated to pay any transfer taxes resulting from any transfer
requested by the
Holder in connection with any such conversion.
(g) Fractional Shares.
No fractional
shares of Common
Stock
shall be issued upon
conversion of this Note. In lieu of any fractional shares
to which the Holder would otherwise be entitled, the Maker shall pay cash equal
to the product of such
fraction multiplied by the average of the Closing
Bid
Prices of the Common Stock for the five (5) consecutive Trading
Days immediately
preceding the Conversion Date.
(h) Reservation of Common Stock. The Maker shall at all times
when this Note shall
be outstanding,
reserve and keep available out of its
authorized but unissued Common Stock, such number of shares of Common
Stock as
shall from time to time be sufficient to effect the conversion of this Note and
all interest accrued thereon; provided that the number of shares of
Common Stock
so reserved shall at
no time be less than one hundred fifty percent (150%) of
the number
of shares of
Common Stock for which this Note and all interest
accrued thereon is at any time convertible. The Maker shall, from time to
time
in accordance with
Delaware law, increase
the authorized
number of shares
of
Common Stock if at any time the unissued number of authorized shares shall not
be sufficient to satisfy the Maker's obligations under this Section
3.6(h).
-49-
<PAGE>
(i) Regulatory Compliance. If any shares of Common Stock to be
reserved for the
purpose of conversion
of this Note or any
interest accrued
thereon require
registration
or listing with or
approval of any
governmental
authority, stock
exchange or other
regulatory body under
any federal or state
law or regulation
or otherwise before such shares may be validly issued or
delivered upon
conversion, the Maker
shall, at its sole
cost and expense,
in
good faith
and as expeditiously as possible, endeavor to secure such
registration, listing or approval, as the case may be.
Section 3.7
Prepayment.
(a) Prepayment
Upon an Event of Default. Notwithstanding
anything to the contrary contained herein, upon the occurrence of an Event
of
Default described
in Sections
2.1(b)-(k)
hereof, the Holder shall have the
right, at such Holder's option, to require the Maker to prepay in
cash all or a
portion of this Note at a price equal to one hundred ten percent (110%) of the
aggregate principal
amount of this Note
plus all accrued and
unpaid interest
applicable at the time
of such request.
Nothing in this
Section 3.7(a)
shall
limit the Holder's rights under Section 2.2 hereof.
(b) Prepayment Option Upon Major Transaction. In addition to
all other rights of the Holder contained herein, simultaneous with the
occurrence of a Major Transaction (as defined below), the Holder shall have the
right, at the Holder's
option, to require the
Maker to prepay in cash all or a
portion of the Holder's Notes at a price equal to one hundred
percent (100%) of
the aggregate principal amount of this Note plus all accrued and
unpaid interest
(the "Major Transaction Prepayment Price"); provided that the
Company shall have
the sole option to pay the Major Transaction Prepayment Price in cash or
shares
of Common Stock. If the Holder elects to receive payment of the Major
Transaction Prepayment
Price in shares of
Common Stock, the price per share
shall be based upon the Conversion Price then in effect on the day
preceding the
date of delivery
of the Notice of
Prepayment
at Option of Holder
Upon Major
Transaction (as hereafter defined) and the Holder shall have demand
registration
rights with respect to such shares.
(c) Prepayment Option
Upon Triggering
Event. In addition
to
all other rights of the Holder contained herein, after a Triggering Event (as
defined below),
the Holder shall have
the right, at the
Holder's option,
to
require the
Maker to prepay
all or a portion
of this Note in cash
at a price
equal to one hundred twenty percent (120%) of the aggregate
principal amount
of
this Note plus all accrued and unpaid interest (the "Triggering
Event Prepayment
Price," and,
collectively with the
Major Transaction
Prepayment
Price, the
"Prepayment Price").
(d) Intentionally Omitted.
(e) "Major Transaction." A "Major Transaction" shall be deemed
to have occurred at such time as any of the following events:
-50-
<PAGE>
(i) the consolidation,
merger or other
business
combination of the Maker with or into another Person (as defined in
Section 4.13
hereof) (other than (A) pursuant to a migratory merger effected solely for the
purpose of changing
the jurisdiction
of incorporation of the Maker or (B) a
consolidation, merger
or other business
combination
in which holders of the
Maker's voting power
immediately prior to
the transaction
continue after the
transaction to hold,
directly or indirectly, the voting power of the
surviving
entity or entities
necessary to elect a majority of the members of the board of
directors (or their
equivalent if other than a corporation) of such entity or
entities).
(ii) the sale or transfer of more than fifty
percent (50%)
of the Maker's assets (based on the fair market value as
determined in good faith by the Maker's Board of Directors) other
than inventory
in the ordinary course
of business in one or a related series of transactions;
or
&
